MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

APPENDIX 4E PRELIMINARY FINAL REPORT

FOR THE YEAR ENDED 30 SEPTEMBER 2020

DETAILS OF REPORTING PERIOD

Current: Year ended 30 September 2020

Previous: Year ended 30 September 2019

RESULTS FOR ANNOUNCEMENT TO THE MARKET	$	MOVEMENT (UP/DOWN)	MOVEMENT (%)
Revenue from ordinary activities	5,840,198	up	22%
Profit from ordinary activities before tax
attributable to members	3,499,208	up	79%
Profit from ordinary activities after tax attributable to members	2,432,846	up	73%
DIVIDEND INFORMATION	CENTS PER SHARE	FRANKED AMOUNT PER SHARE	TAX RATE FOR FRANKING
2020 Final dividend (cents per share)	1.5	1.5	30.0%
2020 Interim dividend (cents per share)	1.0	1.0	27.5%
2019 Final dividend (cents per share)	1.0	1.0	27.5%
2019 Interim dividend (cents per share)	1.0	1.0	30.0%

FINAL DIVIDEND DATES

Ex-dividend date	30 November 2020
Record date	1 December 2020
Last election date for the Dividend Reinvestment Plan (DRP)	11 December 2020
Announcement of DRP issue price	7 December 2020
Payment date	17 December 2020
Date for issue of shares under DRP	17 December 2020

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

NET TANGIBLE ASSETS

30 SEPTEMBER 2020 30 SEPTEMBER 2019

Net Tangible Assets (per share) before tax	1.1872	1.1491
Net Tangible Assets (per share) after tax	1.1563	1.1299

DIVIDEND REINVESTMENT PLAN (DRP)

The DRP is in operation and the fully franked final dividend of 1.5 cent per share qualifies. Participating shareholders will be entitled to be allotted the number of shares (rounded to the nearest whole number) which the cash dividend would purchase at the issue price. The relevant issue price will be the volume weighted average price (VWAP) of shares sold on the ASX (on an ex-dividend basis) five days from the exdividend date inclusive of the ex-dividend date.

AUDIT

This report is based on the financial report which has been audited. All the documents comprise the information required by Listing Rule 4.3A.

ANNUAL GENERAL MEETING (AGM)

The AGM is to be held on 4 December 2020.

Signed on behalf of Morphic Ethical Equities Fund Limited.

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JoAnna Fisher Chairman

Sydney 3 November 2020

0.99620.9962

MORPHIC ETHICAL EQUITIES FUND LIMITED

ABN 52 617 345 123

ANNUAL REPORT

For the period from 1 October 2019 to 30 September 2020

Morphic Ethical Equities Fund Limited Level 11 179 Elizabeth Street Sydney NSW 2000 P: (02) 9021 7701 www.morphicasset.com

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CONTENTS	PAGE
CHAIRMAN'S LETTER TO SHAREHOLDERS	5
INVESTMENT MANAGER’S REPORT	8
DIRECTORS' REPORT	13
AUDITOR’S INDEPENDENCE DECLARATION	26
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME	27
STATEMENT OF FINANCIAL POSITION	28
STATEMENT OF CHANGES IN EQUITY	29
STATEMENT OF CASH FLOWS	30
NOTES TO THE FINANCIAL STATEMENTS	31
DIRECTORS' DECLARATION	56
INDEPENDENT AUDIT REPORT TO THE MEMBERS	57
SHAREHOLDER INFORMATION	62
CORPORATE DIRECTORY	64

CHAIRMAN'S LETTER TO SHAREHOLDERS

Dear fellow shareholder,

I am pleased to share the Company’s annual results for our third full year since our Australian Securities Exchange listing on May 2nd, 2017, and covers the period from October 1st, 2019 to our financial year end of September 30th, 2020.

I again thank all shareholders for their support of the Company and welcome shareholders who have joined us over the last year.

In the Prospectus for our listing in mid-2017, we said we would start paying sustainably growing dividends, subject to availability of distributable profits, after the end of our first full year of operation. We began paying dividends six months earlier than expected – and we are pleased to now increase our final dividend to 1.5 cents a share, fully franked. This rise reflects the fact that we now have enough profits in our reserves to maintain this new level of semi-annual dividends for at least another three years. The record date for the final dividend for the 2019/20 year will be December 1st, 2020 and the payment date will be December 17th, 2020.

Our long-term approach to raising dividends will always be partly influenced by the potential for these to be franked. At this stage it is aimed to maintain full franking, but this in turn depends on the rate that we realise taxable profits and generate franking credits.

The Company continues to advocate for a framework where financial outcomes are achieved while being cognisant of their impact on the world around us. We provide shareholders with the opportunity to benefit from an actively managed portfolio of global securities that have been screened to exclude companies involved in environmentally damaging activities including coal and uranium mining, oil and gas, animal cruelty, tobacco, armaments, alcohol and gambling.

Requirements to integrate Environmental, Social and Governance (ESG) considerations into the investment process continue to intensify and with every year we see more capital moving into socially responsible investments, with investor concern for action on climate change providing one of the important drivers on this growth.

Much thought went into designing the Company’s screening rules to ensure that the Fund’s shareholders could be confident their investments are managed to maximise returns whilst doing this in an ethical manner. As a result the Company is certified by the Responsible Investment Association of Australasia (RIAA). Morphic Asset Management, the Manager, is a signatory to PRI and maintains the organisation’s A+ rating (the highest rating) for all its relevant modules, including Investment Strategy, and Governance, a rating substantially higher than the bulk of its peers. From an investor perspective this is also proving a winning strategy for the Company with a significant part of this year’s performance in absolute and relative returns attributable to our short positions in fossil fuel businesses and gambling stocks in particular.

In mid-October, we announced that Mr Bill Pridham had been appointed Portfolio Manager of the Fund. Mr Pridham replaces Mr Chad Slater, who has resigned from Morphic Asset Management, a wholly owned subsidiary of Ellerston Capital. Mr Pridham has been co-head of global equities at the Ellerston Capital Group with Mr Slater. MEC will continue to be managed in line with its Environmental, Social and Governance (ESG) charter supported by Mr James Tayler, Head of ESG. Mr Pridham will continue to draw on the investment insight and resources of the broader Ellerston teams. The MEC Board would like to thank Mr Slater for his valuable contribution to MEC since its inception in 2017 and for compiling an excellent final Investment Managers Report below. We wish him all the best in his future endeavours.

COMPANY PERFORMANCE

During the year to September 30th, 2020, the Company achieved a pre-tax operating profit of $3,499,208 (2019: $1,955,297) and a posttax operating profit of $2,432,846 (2019: $1,407,789). We consider it is also useful to consider performance for a listed investment Company from the following perspectives:

1. INVESTMENT PERFORMANCE

The Company’s investment portfolio performance shows how the Manager has performed before deducting management fees and taxes, as compared to the Company’s investment benchmark, the MSCI All Countries Total Return Daily Index.

In its third full year of performance, the portfolio achieved net of fees and taxes returns of 6.65% compared to the benchmark which rose to 3.93% (net).

2. NTA PERFORMANCE

From a shareholder perspective, it is also useful to consider movements in the Company’s NTA per share, which adjusts for the impact of management fees of 1.25% and other Company related expenses.

At September 30th, 2020, MEC’s pre-tax NTA was $1.1872 and its post-tax NTA was $1.1563 per share. Please note that these NTA figures are after deducting two cents per share from the NTA paid as dividends over the year.

For reference, at September 30th, 2019, MEC’s pre-tax NTA was $1.1491 and its post-tax NTA was $1.1299 per share. This compares to the pre-tax NTA of $1.0623 and post-tax NTA of $1.0736 at listing.

As at September 30th, 2020 MEC’s shares closed at $0.985 a significant increase from the share price at September 30th, 2019 ($0.895).

ANNUAL GENERAL MEETING

The Board has been monitoring the impact of the COVID-19 pandemic. Having regard to social distancing requirements and in the interests of the health and safety of our shareholders, directors and staff, we have decided that the Annual General Meeting will be held as a virtual event. This approach is in line with temporary modifications to the law and current regulatory guidance.

The Annual General Meeting will be held at 11.00am on 4 December 2020 virtually. The Directors encourage you to attend the meeting.

Regards,

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JOANNA FISHER

Chairman

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INVESTMENT MANAGER’S REPORT

The word “momentous” has a tendency to be overused, however events since our last report a year ago really do fit the bill for use of the term.

Over that period we in Australia have experienced the devastating bushfires of late 2019 and early 2020, caused in large part by the conjunction of two climate change driven factors: a disastrous drought across most of the eastern states, creating tinder for bushfires during one of the hottest summers on record. Sadly there are likely to be more events like this going forward as climate change accelerates, not just in Australia, but also in other parts of the developed and developing world.

The fires were but a prelude to the main act of 2020, the first pandemic of most of our lifetimes, COVID-19. As we write, the pandemic continues unabated with over one million deaths worldwide. And like the bushfires, as climate change accelerates and humans encroach more on natural habitats, we can also expect more of these crossover viruses especially if globalization resumes.

The pandemic had the same effect on markets and economies as the other pandemics have had: both collapsed. The difference to other pandemics, such as the Spanish Flu of 1919, was that governments had learnt the lesson and stepped into provide massive fiscal support along with monetary support to the system. As a result, the 30% decline in markets in March, the fastest bear market on record, was followed by the fastest recovery on record. Being bullish made one look foolish in February and March, but being bearish has made one look foolish since then, and with markets up year to date, the bulls would appear to be in the ascendancy.

To say that managing clients’ money has been challenging this year barely captures the trials and tribulations of attempting the task from your home dining table with children around who require home-schooling whilst markets yo-yo. That said, we count ourselves lucky compared to the many who lost their livelihoods and lives to COVID.

Against this backdrop the team delivered one of its best years for clients, a feat matched by few other managers. Even more impressive, this was delivered with limited drawdowns, outperformance in both down and up months, and lower volatility than most managers.

Pleasingly returns came from a range of sources. In the down month of March, the cash weighting of up to 30% on March added value, but stock selection was also a large contributor in other months, with stocks from a range of countries. Despite Asia and Mid-Caps not outperforming, stock selection outweighed the factor risk.

Also providing a tailwind over the year, was the Fund’s shunning carbon related energy stocks. The energy sector continued to underperform the broader market over the last year as the oil price languished with an oversupply of oil, sharply reduced demand, and investors continuing to remove capital from the sector, in many cases permanently.

The largest contributor over the year was Cellnex, a Spanish listed owner and operator of mobile phone towers in Europe. Cellnex benefitted from three tailwinds: firstly COVID has increased demand for stocks with highly certain cashflows that look more like bonds. Cellnex, with annuity style cashflows from renting its towers, certainly fits that bill. Secondly, its acquisition based growth strategy also finds favour with investors. Thirdly, at a stock specific level, Cellnex is a beneficiary of telecom operators’ voracious need for cash to fund 5G expansion plans, with many selling their tower business to companies like Cellnex, which can earn a better return by renting what were often single user sites to a wider range of clients. The Fund recently increased its stake through participation in a deeply discounted rights issue last month. With this money now raised, the company is able to fund further purchases to grow its installed base.

The second largest contributor was our position in Logitech, a maker of computer peripherals, which has enjoyed a “Working from Home” (WFH) driven explosion in demand for devices. Having almost doubled its money as the stock went from trading on 18x earnings to 30x, the Fund has quit its holding completely. Whilse there is some emerging consensus that WFH is here to stay, it remains to be seen how much of the Logitech’s earnings growth reflected a one-off “pull forward” in sales – in which case earnings may stagnate next year. At 30x earnings the upside seems baked in so the risk reward calculation argued against holding the stock.

One of the other large contributors was the Fund’s holding in SolarEdge, a stock which we include in “positive screen” segment of investments in companies that contribute positively to the world. One perennial challenge in investing ethically is to avoid stocks that may change the world, but leave you poorer as an investor.

The solar sector has long been a classic for this, full as it is of highly competitive, commoditised products, where Chinese government subsidised players set out to control many parts of the value chain through a brutal price war that has been great for consumers but decimated investor returns. As a result the Fund has been traditionally wary of the sector, especially manufacturers of solar panels.

Israeli based, US listed, SolarEdge operates in a higher tech, less commoditised part of industry: the inverters that connect panels with the power supply. More specifically, SolarEdge is one of two global players that revolutionised the inverter market with its proprietary, software driven optimisers, which maximise the performance of the whole solar installation on a panel by panel basis. This has kept competition more limited, while the company’s focus on developed markets has also helped. After the stock sold off heavily in March, the Fund bought in around $100, on the belief that there would be a push for more “green expenditure” in both Europe and the US. The stock

is now trading near $300 and at 65x earnings, a substantial amount of positive news is now baked in. Reflecting this, the Fund has trimmed its holding, but would look to rebuild on pullbacks.

Turning to the less satisfactory investments of the year, sometimes it is the “obvious” expected winners that disappoint the most. Service Corporation (SCI) is one of the leading funeral home operators in the USA. With COVID mortality in the USA high, particularly amongst the elderly, one would expect earnings to be solid. And yet it’s our largest detractor. Why? Two reasons. Firstly with restrictions on attendances of funerals, many families have opted for minimalist services, leading to lower margins as less add-on products are sold. This is coupled with a pick-up in an already existing trend to cremations from burial, which is a lower margin business. Secondly, SCI’s investment portfolio which reflects cash advanced from pre-sold funerals suffers when markets decline. Upon reflection of the greater uncertainties previously discussed and marginal risk/reward characteristics, the Fund has exited the position.

The other large detractor of note was Bank Leumi in Israel. Bank stocks globally have done relatively poorly in the last 12 months, as recessions nearly always bring higher levels of loan losses and this time governments are leaning on banks not to foreclose and show forbearance, whilst also often banning payment of dividends. Leumi’s problems were compounded by Israel having two lockdowns and a very high level of infection rates per capita. The Fund exited the position during the year.

OUTLOOK

Whilst the recession has been deep, stock markets have done much better than many would have expected. Investors expect governments will continue to provide extraordinary levels of support to consumers and businesses, carrying the debt on the government balance sheet to support the economy. Whilst the debt may be a problem down the track, that’s less of an issue for markets and stocks now, especially with global interest rates continuing to plumb new lows.

The largest unanswered question is whether the newfound love of fiscal stimulus carries on beyond this year. The answer to this question will determine the winning and losing sectors over the coming years.

One of the hallmarks of the recovery from the GFC was the rapid withdrawal of fiscal support globally from 2010 onwards. Europe tried “Austerity“ and in the USA, the “tea party” took control of the Republican party and stymied any more fiscal expansion under Obama. The net result was a much slower and longer recovery that required extraordinary monetary support. With rates near zero and slow growth, the premium for tech stocks and growth stocks exploded, with cyclicals languishing.

If fiscal support remains in place, via a Democratic “blue wave” or more left of centre parties winning in Europe, then it may be the first “V Shaped” recovery in two decades that leads to cyclical stocks outperforming and a steepening bond yield curve (‘bear steepening”) as markets price the much higher levels bond issuances. It may not lead to overall market gains, but it is likely to lead the reversal of the post 2010 sector performance if it is to occur (Exhibit 1)

Exhibit 1 Sector Performance, US Market (2010 - now)

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Source: Minack Advisory

If the outlook for cyclical stocks may have improved, it may be conversely the tide is turning against many of the mega-cap tech stocks that have driven the rally of the last decade. There is now emerging bipartisan support for the regulation and break-up of many the tech titans. Break-up and regulation rarely enhances shareholder returns for the sectors impacted.

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

Much of this is still up in the air, but with the ratio of the Nasdaq (tech heavy) to the Russell 2000 (small cap cyclical) sitting near levels of the tech bubble of 1999, there is much upside to the latter if the above transpires.

How does Asia fare? Asia is more exposed to cyclical stocks than most regions. EPS at the index level has languished and there is a general feeling of resignation in the investment community with Asian markets going nowhere for many years and de-rated (Exhibit 2). So, again, the stage is set. But we are mindful that we have written this before and been burnt.

Exhibit 2: Cyclically Adjusted P/E (CAPE) By Region (1980 –now)

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Source: Minack Advisory

While we are mindful of the macro we continue to seek out stocks with long term secular drivers at attractive valuations or idiosyncratic stories in which the market has yet to identify the underlying value. It is this nexus of interesting stock stories, coupled with improving ESG focus, with a supportive of macroeconomic backdrop that the Fund continues to seek out globally and where we continue to believe that ethical investing can be rewarding for both the investor without making the world we live in a poorer place.

Finally from the combined Morphic and Ellerston investment team, our best wishes to you and your family into the coming festive season. It has been a hard year for many of us and as the year draws to a close, we hope you are able to take some time off with your family, and wherever possible in a non-lockdown restricted environment.

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

PORTFOLIO COMPOSITION

INVESTMENT PORTFOLIO AT 30 SEPTEMBER 2020

EQUITIES (**SHORTS) **	FAIR VALUE
	($)
Fujitsu Limited	3,014,411
Nec Corporation	2,240,443
Tencent Holdings Ltd	2,108,686
Cellnex Telecom SAU	1,968,051
Netease INC	1,755,151
New Oriental Educatio-SP ADR	1,376,631
Assurant Inc	1,337,076
Keysight Technologies Inc	1,336,820
Tencent Music Entertainment ADR	1,224,050
Alstom	1,205,849
Anritsu Corp	1,164,252
Techtronic Industries Co Limited	1,066,973
Open House Co Ltd	954,539
SolarEdge Technologies Inc	831,357
WillScot Mobile Mini Holdings	705,133
Sensata Technology Holding	704,204
China Water Affairs Group Ltd	640,851
Liveramp Holdings Inc	613,945
Welcia Holdings Co Ltd	599,231
Artisan Partners Asset Management Ordina	511,344
Virtus Investment Partners	502,951
Ping An Healthcare and Technology	495,856
Anima Holding SPA	488,347
T Rowe Price Group Inc	465,116
Lululemon Athletica Inc	459,533
Service Corp International	436,777
Ciena Corporation	365,475
*Affiliated Managers Group*	*(505,635)*
*Nike Inc -CL B*	*(507,940)*
*Invesco Limited*	*(509,411)*
*Schwab (Charles) Corp*	*(520,640)*
*IIDA Group Holding Co Ltd*	*(906,586)*
	25,622,840
ETFs (**SHORTS) **
iShares Core S&P500 ETF	17,714,710
Vanguard FTSE Developed ETF	11,402,298
Vanguard FTSE Emgerging Markets ETF	3,798,303
Ishares MSCI ACWI ETF	1,301,021
*MS MOWRLD Index*	*(2,662,921)*
	31,553,411
Equity Swaps, FX, Futures and Options	3,283,433
Total Portfolio	60,459,684

ANNUAL REPORT

MORPHIC ETHICAL EQUITIES FUND LIMITED

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MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

DIRECTORS' REPORT

The Directors present their Report together with the Financial Report of Morphic Ethical Equities Fund Limited ("Company") for the year ended 30 September 2020.

INFORMATION ON DIRECTORS

The following persons were directors of the Company from registration date and up to the date of this report (unless otherwise indicated):

JOANNA FISHER | INDEPENDENT CHAIRMAN

EXPERIENCE AND EXPERTISE

JoAnna has a long-standing and international career in the financial sector in investment management, wholesale banking and capital markets. Her more than 20 years of experience encompasses business performance improvement, governance, compliance and risk management.

JoAnna spent 12 years at Bankers Trust Corporation in the USA, Japan, the UK and Australia, managing funds and developing the institutional funds management businesses. She is also a former General Manager - Strategy and Marketing for the Commonwealth Bank. JoAnna is a graduate of the Australian Institute of Company Directors and holds a Bachelor of Arts (Asian Studies) and a Bachelor of Economics from The Australian National University.

JoAnna is currently a Non-Executive Director of Mainstream Group Holdings Ltd and is a Member of the Investment Committee at the Australian Catholic Superannuation and Retirement Fund and a Member of the Finance Audit and Risk Committee of the Australian Chamber Orchestra.

OTHER CURRENT DIRECTORSHIPS

Other than acting as Non-Executive Director of Mainstream Group Holdings, JoAnna is not currently serving a directorship for any other listed companies.

FORMER DIRECTORSHIPS IN THE LAST 3 YEARS

Nil.

SPECIAL RESPONSIBILITIES

Chairman of the Board and member of the Audit & Risk Committee.

INTERESTS IN SHARES AND OPTIONS

Details of JoAnna's interests in shares of the Company are included later in this report.

INTEREST IN CONTRACTS

JoAnna has no interests in contracts of the Company.

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

JACK LOWENSTEIN | NON-INDEPENDENT DIRECTOR

EXPERIENCE AND EXPERTISE

Jack had careers in corporate finance and as an international financial journalist and has been involved in the research and investment of global equities and other Securities for more than 30 years. Jack has a BA and a MA from Oxford University and in 2009 he completed the three year part time Owner/President Management Course at Harvard Business School.

He was the Deputy Chief Investment Officer at Hunter Hall, responsible for risk management and portfolio construction. He joined Hunter Hall when it had just $13m under management in 1997 and played a key role in building it to a peak of just under $3 billion in FUM. In his ten years as a Portfolio Manager with Hunter Hall he generated substantial out-performance.

OTHER CURRENT DIRECTORSHIPS

Morphic Asset Management Pty Ltd (Morphic), the investment manager of the Company.

Fiji Kava Limited.

FORMER DIRECTORSHIPS IN THE LAST 3 YEARS

Nil.

SPECIAL RESPONSIBILITIES

Nil.

INTERESTS IN SHARES AND OPTIONS

Details of Jack's interests in shares of the Company are included later in this report.

INTEREST IN CONTRACTS

Jack has no interests in contracts of the Company.

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

MARK FORSTMANN | INDEPENDENT DIRECTOR

EXPERIENCE AND EXPERTISE

Mark has 28 years’ experience in investment markets including equities, currencies and fixed interest. His career spans investment markets and film and television production. He holds a B.Sc. from Sydney University, a Graduate Diploma from AFTRS, and has studied B.A.Communications at University of Technology Sydney.

Mark worked at BankAmerica in Sydney, Banque Indosuez in both Sydney and Paris. He was also a director at Hunter Hall International for 15 years. He was a fund manager at Future Super and Grosvenor Pirie from 2016 to 2019.

Mark served on the Board of the Nature Conservation Trust of NSW between December 2009 and May 2015.

OTHER CURRENT DIRECTORSHIPS

None.

FORMER DIRECTORSHIPS IN THE LAST 3 YEARS

Nil.

SPECIAL RESPONSIBILITIES

Mark is a member of the Audit & Risk Committee.

INTERESTS IN SHARES AND OPTIONS

Details of Mark's interests in shares of the Company are included later in this report.

INTEREST IN CONTRACTS

Mark has no interests in contracts of the Company.

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

VIRGINIA MALLEY | INDEPENDENT DIRECTOR

EXPERIENCE AND EXPERTISE

Virginia has worked in the financial services sector for 31 years. Virginia is a Fellow of the Australian Institute of Company Directors and completed the Company Director Course in 2007. She holds a Bachelor of Arts and a Master of Applied Finance from Macquarie University, a Juris Doctor from the University of Technology Sydney, and a Graduate Diploma of Environmental Law and a Master of Law from the University of Sydney. In November 2016, she was recognised with a Faculty Award for excellence and ongoing contribution to the gold standard in governance education by the Australian Institute of Company Directors.

In 1987, she joined Macquarie Bank as a credit analyst and became Chief Risk Officer of the Funds Management Group in 2003. During this period, she developed and implemented risk management frameworks for the domestic and Asian joint venture funds management businesses. Following her executive career at Macquarie, Virginia served as a non-executive director on a number of subsidiary boards including Macquarie Investment Management Limited until 2012.

OTHER CURRENT DIRECTORSHIPS

Virginia is currently a director of Perpetual Superannuation Limited and Perpetual Equity Investment Company Limited, and is the Deputy Chair of the Biodiversity Conservation Trust.

FORMER DIRECTORSHIPS IN THE LAST 3 YEARS

1 Page Limited.

SPECIAL RESPONSIBILITIES

Chairman of the Audit & Risk Committee.

INTERESTS IN SHARES AND OPTIONS

Details of Virginia's interests in shares of the Company are included later in this report.

INTEREST IN CONTRACTS

Virginia has no interests in contracts of the Company.

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

CHAD SLATER | ALTERNATE DIRECTOR (RESIGNED 19 OCTOBER 2020)

EXPERIENCE AND EXPERTISE

Prior to his resignation Chad was the Co-Head of Global Equities at Ellerston Capital Group. Chad co-founded Morphic Asset Management in 2012 and was its joint Chief Investment Officer until 2019.

Chad was previously a Portfolio Manager and Head of Currency and Macroeconomics at Hunter Hall for five years. Prior to this, he was an Investment analyst at BT Financial Group including a secondment to Putnam Investments in Boston. He began his career as an Economist at Australian Federal Treasury.

Chad holds a B.Comm and a B.Econ (Hons) from the University of Queensland and has completed the Chartered Financial Analyst (CFA) program and been awarded the CFA Charter.

FORMER DIRECTORSHIPS IN THE LAST 3 YEARS

Nil.

SPECIAL RESPONSIBILITIES

Nil.

INTERESTS IN SHARES AND OPTIONS

Details of Chad's interests in shares of the Company are included later in this report.

INTEREST IN CONTRACTS

Chad has no interests in contracts of the Company.

COMPANY SECRETARY

The following person held the position of Company Secretary at the end of the year:

JACK LOWENSTEIN

Jack Lowenstein is also a non-independent director. Please refer to page 14 of the Director’s Report for details of Jack’s experience and qualifications.

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

ATTENDANCE AT MEETINGS

BOARD OF DIRECTORS MEETINGS

	MEETINGS HELD	MEETINGS
	AND ENTITLED TO	ATTENDED
DIRECTOR	ATTEND

JoAnna Fisher	8	8
Jack Lowenstein	8	8
Mark Forstmann	8	8
Virginia Malley	8	8
Chad Slater*	-	-

As alternative director to Jack Lowenstein, Chad attended meetings in Jack’s absence.

AUDIT & RISK COMMITTEE MEETINGS

	MEETINGS HELD	MEETINGS
	AND ENTITLED TO	ATTENDED
DIRECTOR	ATTEND
JoAnna Fisher	4	4
Mark Forstmann	4	4
Virginia Malley	4	4

PRINCIPAL ACTIVITY

The Company’s principal activity is investing in global listed securities screened to exclude entities involved in environmentally damaging activities (including coal and uranium, mining and oil and gas), intensive farming and aquaculture, tobacco, armaments, alcohol and gambling.

The Company’s investment objectives are to: deliver investors an ethically screened portfolio; generate superior risk adjusted returns; and provide capital growth and consistent income. No change in this activity took place during the year or is likely to in the future.

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

REVIEW OF OPERATIONS

Beginning in January 2020, global financial markets have experienced and may continue to experience significant volatility resulting from the spread of a novel coronavirus known as COVID-19. The outbreak of COVID-19 has resulted in travel and border restrictions, quarantines, supply chain disruptions, lower consumer demand and general market uncertainty. The effects of COVID-19 have and may continue to adversely affect the global economy, the economies of certain nations and individual issuers, all of which may negatively impact the Company’s performance.

The Company’s investments during the year resulted in operating profit of $3,499,208 before tax and $2,432,846 after tax. This reflects the performance of the investment portfolio over the year as outlined below.

INVESTMENT RETURNS

	RETURNS OVER THE PERIOD	RETURNS SINCE INCEPTION
	1 OCTOBER 2019 TO	2 MAY 2017 TO
	30 SEPTEMBER 2020	30 SEPTEMBER 2020
	Gross Net	Gross Net

Investment Portfolio	8.03% 6.65%	7.78% 6.67%
MSCI All Countries Total Return Daily Index	4.45% 3.93%	10.59% 10.00%
Outperformance	3.58% 2.72%	(2.81%) (3.33%)

Gross return is before fees and taxes.

Net return is net of investment management fees, before Company administration costs and taxes

DIVIDENDS PAID OR RECOMMENDED

Since the end of the year, the Directors declared a fully franked final dividend of 1.5 cents per share. This with the fully franked interim dividend of 1.0 cents per share paid to shareholders on 31 July 2020 brings the Company’s fully franked full year dividend to 2.5 cents per share. The final dividend is to be paid on 17 December 2020.

The Board is committed to paying fully franked dividends to shareholders and raising the dividend over time, provided the Company has distributable profits, franking credits and it is within prudent business practices.

NET ASSETS

As at 30 September 2020 the net assets of the Company were $61,136,790. Please refer to the Statement of Financial Position for further details.

STATE OF AFFAIRS

During the year there was no significant change in the state of affairs of the Company.

EVENTS SUBSEQUENT TO BALANCE DATE

Since the end of the year, the Directors declared a fully franked final dividend of 1.5 cents per share fully franked to be paid on 17 December 2020.

No other matter or circumstance has arisen since the end of the financial year that has significantly affected or may significantly affect the operations of the Company, the result of those operations or the state of affairs of the Company in subsequent financial years.

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

LIKELY DEVELOPMENTS

The Company will be managed in accordance with the Constitution and investment objectives as detailed in the Prospectus dated 13 March 2017.

INSURANCE OF OFFICERS

During the financial year, the Company paid a premium for an insurance policy insuring all directors and officers against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in their capacity as director or officer of the Company, other than conduct involving a wilful breach of duty in relation to the Company. In accordance with common commercial practice, the insurance policy prohibits disclosure of the nature of the liability insured against and the amount of the premium.

ENVIRONMENTAL REGULATIONS

The Company’s operations are not subject to any significant environmental regulations.

ROUNDING OF AMOUNTS TO NEAREST DOLLAR

In accordance with ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, the amounts in the Directors’ report and in the financial report have been rounded to the nearest dollar, unless otherwise indicated.

REMUNERATION REPORT (AUDITED)

This remuneration report sets out information about the remuneration of the Company’s directors for the year ended 30 September 2020, under the requirements of Section 300A of the Corporations Act.

KEY MANAGEMENT PERSONNEL

The directors and other key management personnel of the Company during the whole of the financial year, and up to the date of this report are (unless otherwise indicated):

JOANNA FISHER

JACK LOWENSTEIN

MARK FORSTMANN

VIRGINIA MALLEY

CHAD SLATER (RESIGNED 19 OCTOBER 2020)

REMUNERATION REPORT

This report details the nature and amount of remuneration for each Director of the Company in accordance with the Corporations Act and the Company’s Constitution.

The Company’s board comprises of four directors of which three are Independent Directors and one is a Non-Independent Director. An alternate director represents the Non-Independent director from time to time. The Board from time to time determines remuneration of Directors within the maximum amount approved by the Company at general meetings.

The Directors Remuneration reflects the demands that are made on them and their responsibilities. The performance of Directors is reviewed by the Board annually. The Board determines the remuneration levels and ensures they are competitively set to attract and retain appropriately qualified and experienced directors.

The maximum total remuneration of the Directors has been set at $140,000 per annum. The amount paid for financial year ended 30 September 2020 was $140,000 (30 September 2019: $140,000).

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

Directors do not receive bonuses nor are they issued options on securities as part of their remuneration. Directors’ fees cover all main Board activities and membership of committees.

Directors’ remuneration is not directly linked to the Company’s performance.The following table shows details of the remuneration received or receivable by the Directors of the Company for the current year.

YEAR ENDED 30 SEPTEMBER 2020 DIRECTOR POSITION	SHORT-TERM EMPLOYEE BENEFITS POST- EMPLOYMENT BENEFITS CASH SALARY ($) SUPERANNUATION ($) TOTAL ($)

YEAR ENDED 30 SEPTEMBER 2019 DIRECTOR POSITION JoAnna Fisher Independent Chairman Jack Lowenstein Non-Independent Director Mark Forstmann Independent Director Virginia Malley Independent Director Chad Slater Alternate Director	54,795 5,205 60,000 - - - 36,530 3,470 40,000 36,530 3,470 40,000 - - -
	SHORT-TERM EMPLOYEE BENEFITS POST- EMPLOYMENT BENEFITS CASH SALARY ($) SUPERANNUATION ($) TOTAL ($) 127,855 12,145 140,000

JoAnna Fisher Independent Chairman Jack Lowenstein Non-Independent Director Mark Forstmann Independent Director Virginia Malley Independent Director Chad Slater Alternate Director	54,795 5,205 60,000 - - - 36,530 3,470 40,000 36,530 3,470 40,000 - - -
	127,855 12,145 140,000

The Company has no employees other than the Directors and therefore does not have a remuneration policy for employees.

The Directors are the only people considered to be key management personnel of the Company.

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

The following table reflects the Company's performance and Directors remuneration over four years:

	2020	2019	2018	2017
Operating (loss)/profit after tax ($)	2,432,846	1,407,789	3,812,225	286,094
Dividends (cents per share)	2.5	2.0	2.0	-
NTA after tax ($ per share)	1.1563	1.1299	1.1543	1.081
Total Directors remuneration (4$)	140,000	140,000	140,000	58,013
Shareholders equity ($)	61,136,790	59,579,544	52,547,228	49,114,740

As outlined above, Directors fees are not directly linked to the Company's performance.

DIRECTOR RELATED ENTITY REMUNERATION

Morphic Asset Management Pty Limited (Morphic) (ABN 33 155 937 901, AFSL 419916) has been appointed as the Investment Manager of the Company. The Manager is privately owned and incorporated in 2012. Jack Lowenstein is a director of the Manager.

a) Management fee

The Manager is entitled to be paid monthly a Management Fee equal to 1.25% (plus GST) per annum of the Value of the Portfolio (payable monthly in arrears and calculated on the last business day of each month).

b) Performance fee

The Manager is entitled to be paid by the Company a fee (Performance Fee) equal to 15% (plus GST) of the Portfolio’s outperformance relative to the MSCI All Countries Total Return Daily Index (“the Index”) in Australian dollars (Benchmark) over the 12-month period, subject to the Portfolio generating absolute gains since inception and the recoupment of prior underperformance.

Management and performance fees paid to the Manager during the year were as follows:

	YEAR ENDED	YEAR ENDED
	30 SEPTEMBER 2020	30 SEPTEMBER 2019
	($)	($)

Management fees paid and payable during the year	788,020	729,917
Management fees payable at year end	65,530	63,343
There were no performance fees earned or paid during the year.

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

EQUITY INSTRUMENT DISCLOSURES RELATING TO DIRECTORS

The relevant interests of the Directors and their related entities in the Securities of the Company were:

SHARES AS AT 30 SEPTEMBER 2020

DIRECTOR	OPENING BALANCE	ACQUISITIONS/	DISPOSALS	NUMBER OF
		OPTIONS		SHARES
		EXERCISED

JoAnna Fisher	103,163	2,168	-	105,331
Jack Lowenstein	579,837	199,013	-	778,850
Mark Forstmann	41,266	867	-	42,133
Virginia Malley	53,954	1,131	-	55,085
Chad Slater	56,529	6,141	(7,261)	55,409

There has been no movement in the equity instruments held by Directors between 30 September 2020 and the date of the Director's report.

As at 30 September 2020 there were no outstanding options or issued during the year

SHARES AS AT 30 SEPTEMBER 2019

DIRECTOR	OPENING BALANCE	ACQUISITIONS/	DISPOSALS	NUMBER OF
		OPTIONS		SHARES
		EXERCISED

JoAnna Fisher	100,920	2,243	-	103,163
Jack Lowenstein	535,703	44,134	-	579,837
Mark Forstmann	40,368	898	-	41,266
Virginia Malley	52,780	1,174	-	53,954
Chad Slater	55,341	1,188	-	56,529

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

OPTIONS AS AT 30 SEPTEMBER 2019

DIRECTOR	OPENING BALANCE	ACQUISITIONS	LAPSES/	NUMBER OF
			DISPOSALS	OPTIONS
JoAnna Fisher	100,000	-	(100,000)	-
Jack Lowenstein	804,000	-	(804,000)	-
Mark Forstmann	160,000	-	(160,000)	-
Virginia Malley	52,300	-	(52,300)	-
Chad Slater	110,454	-	(110,454)	-

--- END OF REMUNERATION REPORT ---

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

PROCEEDINGS ON BEHALF OF THE COMPANY

There are no proceedings that the Directors have brought, or intervened in, on behalf of the Company.

NON-AUDIT SERVICES

The Board of Directors, in accordance with Advice from the Audit and Risk Committee, is satisfied that the provision of non-audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 . The Directors are satisfied that the services disclosed in Note 13 did not compromise the external auditor's independence for the following reasons:

all non-audit services have been reviewed by the Audit Committee to ensure they do not impact the impartiality and objectivity of the auditor;
none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants (including Independence Standards).

AUDITOR'S INDEPENDENCE DECLARATION

A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 26.

Signed in accordance with a resolution of the Directors.

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JOANNA FISHER

Chairman Morphic Ethical Equities Fund Limited

Sydney, 3 November 2020

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

AUDITOR’S INDEPENDENCE DECLARATION

Auditor’s Independence Declaration To the Directors of Morphic Ethical Equities Fund Limited ABN 52 617 345 123

In relation to the independent audit of Morphic Ethical Equities Fund Limited for the year ended 30 September 2020, I declare that to the best of my knowledge and belief there have been:

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(i) no contraventions of the auditor independence requirements of the Corporations Act 2001 ; and
(ii) no contraventions of APES 110 Code of Ethics for Professional Accountants (including
Independence Standards)
S M Whiddett
Partner
Pitcher Partners
Sydney
3 November 2020
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MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 SEPTEMBER 2020

NOTE Investment income Interest income Dividend income Net gains on financial instruments at fair value through profit or loss Net gains on foreign exchange Other income Total investment income Expenses Audit and tax Administration and middle office fees Directors' fees 15 (b) Dividends on borrowed stock Interest expense (including on borrowed stock) Management fees Transaction costs Withholding tax expense Other expenses Total expenses Profit for the year before income tax expense Income tax expense 4(a) Profit for the year Other comprehensive income Total comprehensive income for the year Basic earnings per share 5 Diluted earnings per share 5	YEAR ENDED 30 SEPTEMBER 2020 ($) YEAR ENDED 30 SEPTEMBER 2019 ($) 203 758 1,192,135 1,990,465 5,287,846 2,764,391 (646,939) 12,133 6,953 9,521
	5,840,198 4,777,268
	67,487 57,573 168,059 159,842 140,000 140,000 355,433 534,584 167,882 328,913 788,020 729,917 316,330 331,514 169,406 353,499 168,373 186,129
	2,340,990 2,821,971
	3,499,208 1,955,297 1,066,362 547,508
	2,432,846 1,407,789 - -
	2,432,846 1,407,789
	4.61 cents 2.75 cents
	4.61 cents 2.75 cents

The above Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the Notes to the Financial Statements which follow.

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

STATEMENT OF FINANCIAL POSITION

AS AT 30 SEPTEMBER 2020

NOTE Assets Current assets Cash and cash equivalents 14(a) Receivables 6 Prepayments Investments 7 Total current assets Non-current assets Deferred tax asset 4(c) Total non-current assets Total assets Liabilities Current liabilities Borrowings 14(a) Payables 10 Investments 7 Current tax liability 4(b) Total current liabilities Non-current liabilities Deferred tax liability 4(c) Total non-current liabilities Total liabilities Net assets Equity Issued capital 11(a) Accumulated losses 12(a) Profits reserve 12(b) Total equity	AS AT 30 SEPTEMBER 2020 ($) AS AT 30 SEPTEMBER 2019 ($) 7,050,184 15,287,804 2,321,657 76,902 30,486 21,982 67,301,664 85,831,190
	76,703,991 101,217,878
	145,475 1,183,733
	145,475 1,183,733
	76,849,466 102,401,611
	4,396,274 23,160,333 2,695,608 198,237 6,841,980 17,269,189 814,179 -
	14,748,041 40,627,759
	964,635 2,194,308
	964,635 2,194,308
	15,712,676 42,822,067
	61,136,790 59,579,544
	55,690,082 55,510,102 (1,302,229) (1,003,827) 6,748,937 5,073,269
	61,136,790 59,579,544

The above Statement of Financial Position should be read in conjunction with the Notes to the Financial Statements which follow.

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 SEPTEMBER 2020

NOTE Balance at 30 September 2018 Profit for the year Total comprehensive income for the year Other Transfer to profits reserve 12(a)(b) Transactions with owners in their capacity as owners Shares issued during the year 11(a) Options exercised during the year 11(a) Dividends provided for or paid 17(a) Cost of issued capital, net of tax 11(a) Balance at 30 September 2019 Profit for the year Total comprehensive income for the year Other Transfer to profits reserve 12(a)(b) Transactions with owners in their capacity as owners Shares issued during the year 11(a) Dividends provided for or paid 17(a) Cost of issued capital, net of tax 11(a) Balance at 30 September 2020	ISSUED CAPITAL ($) RETAINED EARNINGS/ (LOSSES) ($) PROFITS RESERVED ($) TOTAL EQUITY ($) 48,903,901 (827,095) 4,470,422 52,547,228
	- 1,407,789 - 1,407,789
	- 1,407,789 - 1,407,789
	- (1,584,521) 1,584,521 -
	- (1,584,521) 1,584,521 -
	6,672,602 - - 6,672,602 24,750 - - 24,750 - - (981,674) (981,674) (91,151) - - (91,151)
	6,606,201 - (981,674) 5,624,527
	55,510,102 (1,003,827) 5,073,269 59,579,544
	- 2,432,846 - 2,432,846
	- 2,432,846 - 2,432,846
	- (2,731,248) 2,731,248 -
	- (2,731,248) 2,731,248 -
	136,382 - - 136,382 - - (1,055,580) (1,055,580) 43,598 - - 43,598
	179,980 - (1,055,580) (875,600)
	55,690,082 (1,302,229) 6,748,937 61,136,790

The above Statement of Changes in Equity should be read in conjunction with the Notes to the Financial Statements which follow.

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 SEPTEMBER 2020

Dividends paid net of dividend reinvestment NOTE Cash flows from operating activities Dividends received Interest received Other income received Interest paid Dividends on borrowed stock Management fees paid Directors' fees paid Withholding tax paid Other operating expenses paid Transaction costs paid Income tax paid Net cash outflow from operating activities 14(b) Cash flows from investing activities Proceeds from sale of investments Payments for purchase of investments Net cash inflow/(outflow) from investing activities Cash flows from financing activities Net proceeds from shares issued under Share Purchase Plan 11(a) Net proceeds from shares issued - placement 11(a) Net proceeds from exercise of options 11(a) Cost of issued capital paid 11(a) Net cash inflow/(outflow) from financing activities Net increase/(decrease) in cash and cash equivalents Effect of exchange rate fluctuations on cash Cash and cash equivalents at beginning of the financial year Cash and cash equivalents at end of the financial year 14(a) Non-cash financing activities Ordinary shares issued under dividend reinvestment plan 14(c)	YEAR ENDED 30 SEPTEMBER 2020 ($) YEAR ENDED 30 SEPTEMBER 2019 ($) 1,190,615 2,144,962 203 758 6,953 9,521 (180,106) (316,689) (396,281) (476,460) (785,833) (723,267) (140,000) (146,835) (169,406) (353,499) (417,229) (423,250) (316,330) (331,514) (400,000) (484,413)
	(1,607,414) (1,100,686)
	80,119,682 6,740,886 (67,025,398) (19,133,772)
	13,094,284 (12,392,886)
	(919,198) (850,932) - 188,100 - 6,353,760 - 24,750 - (67,933)
	(919,198) 5,647,745
	10,567,672 (7,845,827) (41,233) 66,015 (7,872,529) (92,717)
	2,653,910 (7,872,529)
	136,382 130,742

The above Statement of Cash Flows should be read in conjunction with the Notes to the Financial Statements which follow.

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 SEPTEMBER 2020

1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Morphic Ethical Equities Fund Limited ("the Company") is a publicly listed company, incorporated and domiciled in Australia. The Company was incorporated with the Australian Securities and Investments Commission ("ASIC") on 13 February 2017. The registered office and principal place of business of the Company is Level 11, 179 Elizabeth Street, Sydney NSW 2000.

These general purpose financial statements are for the year ended 30 September 2020, and were authorised for issue by the Directors on 3 November 2020.

The Company’s principal objectives are to:

deliver investors an ethically screened portfolio;
deliver investors superior risk adjusted returns; and
provide capital growth and consistent income.

The Manager achieves this through a long and short equity strategy focusing on global securities.

The Company primarily invests in global listed securities. It may also invest in cash, unlisted global securities, fixed interest instruments, commodities, credit instruments and currencies through assets, exchange traded funds or other derivatives, including futures, options, forwards and swaps.

The material accounting policies adopted by the Company in the preparation of the financial statements is set out below:

a) Basis of preparation

These general purpose financial statements have been prepared in accordance with the Australian Accounting Standards, issued by the Australian Accounting Standards Board (“AASB”) and the Corporations Act 2001. The Company is a for-profit entity for financial reporting purposes under Australian Accounting Standard.

The financial statements, except for cash flow information, have been prepared on an accruals basis and are based on historical costs, modified where applicable, by the measurement of fair value of selected assets and liabilities.

The financial statements present reclassified comparative information where required for consistency with the current year’s presentation.

b) Statement of Compliance

The financial statements and notes thereto comply with Australian Accounting Standards as issued by the AASB and International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

c) Investments

i. Recognition/derecognition

The Company recognises financial assets and financial liabilities on the date it becomes party to the contractual agreement (trade date) and recognises changes in fair value of the financial assets or financial liabilities from this date.

Investments are derecognised when the right to receive cash flows from the investments have expired or the Company has transferred substantially all risks and rewards of ownership.

ii. Classification and Measurement

The Company’s investments are classified as held at fair value through profit or loss. They comprise:

Financial instruments held at fair value through profit or loss (financial instruments held for trading) Financial assets and liabilities held at fair value through profit or loss are measured initially at fair value excluding any

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. Transaction costs on financial assets and financial liabilities at fair value through profit or loss are expensed immediately. Subsequent to initial recognition, all instruments held at fair value through profit or loss are measured at fair value with changes in their fair value recognised in the statement of profit or loss.

Derivative financial instruments such as futures, foreign exchange forward contracts, options and interest rates swaps are included under this classification. The Company does not designate any derivatives as hedges against any specific assets or liabilities.

Financial instruments designated at fair value through profit or loss upon initial recognition These include financial assets and liabilities that are not held for trading purposes and which may be sold. These are investments in listed equity securities. The fair value through profit or loss classification is available for the majority of financial assets held by the Company and the financial liabilities arising from the units must be fair valued.

Financial assets and liabilities designated at fair value through profit or loss at inception are those managed, and their performance evaluated on a fair value basis in accordance with the Company’s documented investment strategy as outlined in the Prospectus. The Company’s policy is for the Investment Manager to evaluate information about these financial instruments on a fair value basis together with other related financial information.

iii. Fair Value

When a financial asset is measured at fair value for recognition or disclosure purposes the fair value is based on the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market.

Fair value is measured using the assumptions that market participants would use when pricing the asset, assuming they act in their economic best interests. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

Assets measured at fair value are classified into 3 levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed at each reporting date and transfers between levels are determined based on a reassessment of the lowest level of input that is significant to the fair value measurement.

Shares that are listed or traded on an exchange are fair valued using last sale prices, as at the close of business on the day the shares are being valued.

If a quoted market price is not available on a recognised stock exchange, the fair value of the instruments are estimated using valuation techniques, which include the use or recent arm’s length market transactions, reference to the current fair value of another instrument that is substantially the same, discounted cash flow techniques, option pricing models or any other valuation techniques that provide a reliable estimate of prices obtained in actual market transactions.

iv. Offsetting financial instruments

Financial assets and liabilities are offset, and the net amount reported in the Statement of Financial Position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

d) Foreign currency translation

i. Functional and presentation currency

Items included in the Company’s financial statements are measured using the currency of the primary economic environment in which it operates (the “functional currency”). This is the Australian dollar, which reflects the currency of the economy in which the Company competes for funds and is regulated. The Australian dollar is also the Company’s presentation currency.

ii. Transactions and balances

Transactions during the period denominated in foreign currency have been translated at the exchange rate prevailing at the transaction date. Overseas investments and currency, together with any accrued income, are translated at the exchange rate prevailing at the balance date. Foreign exchange gains and losses resulting from the settlement of such

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

transactions, and from the translation at balance date exchange rates of monetary assets and liabilities denominated in foreign currencies, are recognised in profit or loss. Net exchange gains and losses arising on the revaluation of investments are included in gains on investments.

e) Income tax

The charge for current income tax expense is based on the taxable income for the period. It is calculated using the tax rates that have been enacted or substantively enacted at the end of the reporting period.

Deferred tax is accounted for using the liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss.

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Current and deferred taxes are recognised in profit or loss except where they relate to items that may be recognised directly in equity, such as unrealised gains and losses on long-term equity, in which case they are adjusted directly against equity.

Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilised.

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 Company will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by law.

f) Goods and Services Tax (GST)

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO). In these circumstances, the GST is recognised as being part of the cost of acquisition of the asset or as part of an item of expense. Receivables and payables in the statement of financial position are shown inclusive of GST.

The net amount of GST recoverable from, or payable to, the ATO is included as an asset or liability in the statement of financial position.

Cash flows are presented in the statement of cash flows on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows.

g) Income

Revenue is measured at the fair value of the consideration received or receivable.

Dividend income is recognised in profit or loss on the day on which the relevant investment is first quoted on an “ex-dividend” basis.

Interest revenue is recognised as it accrues using the effective interest method, taking into account the effective yield on the financial asset.

Realised and unrealised gains and losses arising from changes in the fair value of the 'financial assets at fair value through profit or loss' category are included in profit or loss in the period in which they arise. This may also include foreign exchange gains and losses when applicable.

h) Cash and cash equivalents

Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the Statement of Financial Position.

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

i) Margin accounts

Margin accounts comprise cash held as collateral for derivative transactions and short sales. The cash is held by the broker and is only available to meet margin calls.

j) Receivables

Receivables may include amounts for dividends, interest and securities sold. Dividends are receivable when they have been declared and are legally payable. Interest is accrued at the balance date from the time of last payment. Amounts receivable for securities sold are recorded when a sale has occurred.

Such assets are reviewed at the end of each reporting period to determine whether there is objective evidence of impairment.

Receivables are reviewed at the end of each reporting period to determine the need to raise a loss allowance for expected credit losses. The entity has applied the simplified approach to measure expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, review is undertaken of the nature of the receivables, the counterparty, the days overdue and the economic environment.

k) Payables

These amounts represent liabilities for amounts owing by the Company at year end which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Amounts payable for securities purchased are recorded when the purchase has occurred.

l) Derivative financial instruments

The Company may invest in financial derivatives. Derivative financial instruments are accounted for on the same basis as the underlying investment exposure. Gains and losses relating to financial derivatives are included in profit or loss as part of gains/(losses) on investments.

m) Amounts due/to from brokers

Amounts due from/to brokers represent receivables for securities sold and payables for securities purchased that have been contracted for but not yet delivered by year end. Trades are recorded on trade date, and normally settled within two business days. A provision for impairment of amounts due from brokers is established when there is objective evidence that the Company will not be able to collect all amounts due from the relevant broker. Indicators that the amount due from brokers is impaired include significant financial difficulties of the broker, and the probability that the broker will enter into bankruptcy or financial reorganisation and default in payments.

n) Issued capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

o) Earnings per share

i. Basic earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year.

ii. Diluted earnings per share

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

Potential ordinary shares are anti-dilutive when their conversion to ordinary shares would increase earnings per share or decrease the loss per share from continuing operations. The calculation of diluted earnings per share does not assume conversion, exercise or other issue of potential ordinary shares that would have an anti-dilutive effect on earnings per share.

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

p) Dividends

Provisions for dividends payable are recognised in the reporting period in which they are declared, for the entire undistributed amount, regardless of the extent to which they will be paid in cash.

q) Critical accounting judgements and key sources of estimation uncertainty

In the application of the Company’s accounting policies, management of the Company is required to make judgements, estimates and assumptions about the carrying amounts of some assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are considered to be relevant, and reasonable under the circumstance. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised if the revision affects only that year, or in the year of the revision and future years if the revision affects both current and future years. The methods used in the valuation of investments are set out in Note 1(c) to these financial statements.

r) New and revised accounting requirements applicable to the current reporting period

There are no new accounting standards and interpretations that have been published and have been adopted for the 30 September 2020 reporting period that are material to the financial statements.

s) New standards and interpretations not yet adopted

A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 October 2020, and have not been early adopted in preparing these financial statements. None of these are expected to have a material effect on the financial statements of the Company.

t) Rounding of amounts to nearest dollar

In accordance with ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 , the amounts in the directors’ report and in the financial report have been rounded to the nearest dollar, unless otherwise indicated.

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

2. FINANCIAL RISK MANAGEMENT

a) Objectives, strategies, policies and processes

The Company’s Investment Strategy is to construct a portfolio of ethically screened global Securities and Derivatives, designed to provide superior risk adjusted returns to Shareholders. This return will comprise a combination of capital growth and income, thus allowing franked dividends to be paid to Shareholders when prudent, and provided the Company has sufficient profit reserves and franking credits available.

The Company will primarily invest in global listed Securities and Derivatives. The Company may also invest in unlisted Securities, fixed interest instruments, commodities, credit instruments and currencies, all of which may be invested through assets, Exchange Traded Funds or other Derivatives, including futures, options, forwards and swaps.

The portfolio excludes direct investments in entities involved in environmental destruction, including coal and uranium mining, oil and gas, intensive animal farming and aquaculture, tobacco and alcohol, armaments, gambling and rainforest and old growth logging. A minimum of 5% of the portfolio will be invested in the Securities of entities that the Manager believes are working to make a positive future for the world we live in.

The Company is managed from an Australian investor’s perspective with tax and currency exposures forming important considerations in the daily management of the Company, whilst complying with the Company’s Prospectus dated 13 March 2017. Financial risk management is carried out by the Investment Manager under the guidance of its Chief Investment Officer.

The Company’s activities are exposed to different types of financial risks. These risks include credit risk, liquidity risk and market risk (including price risk, foreign currency risk and interest rate risk). The Company may employ derivative financial instruments to hedge these risk exposures in order to minimise the effects of these risks.

b) Credit risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation.

Market prices generally incorporate credit risk assessments into valuations and risk of loss is implicitly provided for in the carrying value of assets and liabilities as they are marked to market at balance date.

The total credit risk for assets is therefore limited to the amount carried in the Statement of Financial Position.

The Manager is responsible for ensuring there is appropriate diversification across counterparties and that they are of a sufficient quality rating. The Manager minimises the Company's concentration of credit risk by undertaking transactions in global listed securities with a number of approved brokers. Payment is only made once a broker has received securities and delivery of securities only occurs once the broker received payment.

Cash

The majority of the Company's cash balances are held with financial institutions that have a Standard and Poor's credit rating of BBB+. The majority of maturities are within three months. The weighted average interest rate of the Company's cash and cash equivalents at 30 September 2020 is 0.36% (30 September 2019: 0.26%).

c) Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. This risk is controlled through the Company’s investment in financial instruments, which under market conditions are readily convertible to cash. In addition, the Company maintains sufficient cash and cash equivalents to meet normal operating requirements.

Maturity analysis for financial liabilities

The table below analyses the Company’s non-derivative financial liabilities into relevant maturity groupings based on the remaining period at reporting date to the contractual maturity date. The amounts in the table are the contractual undiscounted cash flows.

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

AS AT 30 SEPTEMBER 2020	LESS THAN	1-6	6-12	OVER	12	TOTAL
	1 MONTH ($)	MONTHS ($)	MONTHS ($)	MONTHS ($)		($)
Borrowings	4,396,274	-	-		-	4,396,274
Payables	2,695,608	-	-		-	2,695,608
Financial liabilities at fair value through
profit or loss	2,950,212	-	-		-	2,950,212
Current tax liability	-	814,179	-		-	814,179
Contractual cash flows (excluding gross
settled derivatives)	10,042,094	814,179		-	-	10,856,273
AS AT 30 SEPTEMBER 2019
Borrowings	23,160,333	-	-		-	23,160,333
Payables	198,237	-	-		-	198,237
Financial liabilities at fair value through
profit or loss	10,887,927	-	-		-	10,887,927
Contractual cash flows (excluding gross
settled derivatives)	34,246,497	-	-		-	34,246,497

The table below analyses the Fund's derivative financial assets and liabilities into relevant maturity groupings based on the remaining period at the end of the reporting period to the contractual maturity date. The amounts in the table are the contractual undiscounted cash flows.

AS AT 30 SEPTEMBER 2020 Futures Total AS AT 30 SEPTEMBER 2019 Futures Total	LESS THAN 1 MONTH ($) 1-6 MONTHS ($) 6-12 MONTHS ($) OVER 12 MONTHS ($) TOTAL ($) 4,818,326 - - - 4,818,326
	4,818,326 - - - 4,818,326
	(1,727,250) - - - (1,727,250)
	(1,727,250) - - - (1,727,250)

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

d) Market risk

Market risk represents the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices.

The Company is exposed to market risk. This arises from investments held by the Company and classified in the Statement of Financial Position as financial assets and liabilities at fair value through profit or loss.

The Company employs qualitative and quantitative methods to manage the level of risk in the Company. The following investment guidelines are used as part of the risk management process:

Maximum exposure limits to single security positions.
Stop-loss guidelines which set maximum loss tolerance for each individual position.
Internal limits for aggregate exposures to individual countries, industries and asset classes.
Value at Risk (VAR) calculations.

VAR calculations are monitored daily by the Manager to ensure compliance with set limits. The Manager will also conduct stress and scenario analysis of price movements of the Portfolio to monitor the impact of such movements on the Portfolio valuation. Portfolio risk limits are monitored daily and any breaches are to be fixed as soon as possible by adjusting the interests in the Portfolio.

i. Interest rate risk

The Company's interest-bearing financial assets expose it to risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows, the risk is measured using sensitivity analysis on page 41.

The table below summarises the Company's exposure to interest rates risk. It includes the Company's assets and liabilities at fair values, categorised by the earlier of contractual repricing or maturity date.

AS AT 30 SEPTEMBER 2020 WEIGHTED AVERERAGE EFFECTIVE INTEREST RATE (%) Financial Assets Cash and cash equivalents 0.36% Receivables Prepayments Financial assets at fair value through profit or loss Total Financial Assets Financial Liabilities Borrowings 1.34% Payables Financial liabilities at fair value through profit or loss Total Financial Liabilities	FLOATING INTEREST RATE ($) FIXED INTEREST RATE ($) NON INTEREST BEARING ($) TOTAL ($) 7,050,184 - - 7,050,184 - - 2,321,657 2,321,657 - - 30,486 30,486 - - 67,301,664 67,301,664
	7,050,184 - 69,653,807 76,703,991
	4,396,274 - - 4,396,274 - - 2,695,608 2,695,608 - - 6,841,980 6,841,980
	4,396,274 - 9,537,588 13,933,862

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

AS AT 30 SEPTEMBER 2019	WEIGHTED	FLOATING	FIXED	NON	TOTAL
	AVERERAGE	INTEREST	INTEREST	INTEREST	($)
	EFFECTIVE	RATE	RATE	BEARING
	INTEREST RATE	($)	($)	($)
	(%)
Financial Assets
Cash and cash equivalents	0.26%	15,287,804	-	-	15,287,804
Receivables		-	-	76,902	76,902
Prepayments		-	-	21,982	21,982
Financial assets at fair value through profit
or loss		-	-	85,831,190	85,831,190
Total Financial Assets		15,287,804	-	85,930,074	101,217,878
Financial Liabilities
Borrowings	2.16%	23,160,333	-	-	23,160,333
Payables		-	-	198,237	198,237
Financial liabilities at fair value through
profit or loss		-	-	17,269,189	17,269,189
Total Financial Liabilities		23,160,333	-	17,467,426	40,627,759

ii. Other Price Risk

Other Price Risk is the risk that fair value of equities decreases as a result of changes in market prices, whether those changes are caused by factors specific to the individual stock or factors affecting the broader market. Other price risk exposure arises from the Company's investment portfolio.

iii. Foreign currency risk

Foreign currency risk is the risk that the value of a financial commitment, recognised asset or liability will fluctuate due to changes in foreign currency rates.

The Company holds assets denominated in currencies other than the Australian dollar (being the functional currency) and is therefore exposed to foreign currency risk when the value of assets denominated in other currencies fluctuates due to movements in exchange rates.

The Company may enter into foreign exchange forward contracts both to hedge the foreign exchange risk implicit in the value of portfolio securities denominated in foreign currency and to secure a particular exchange rate for a planned purchase or sale of securities.

The Company uses forward foreign exchange contracts to reduce currency risk on specific investments within the portfolio.

The following table summarises the Company’s assets and liabilities, monetary and non-monetary, which are denominated in a currency other than the Australian dollar as per below.

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

AS AT 30 SEPTEMBER 2020 AS AT 30 SEPTEMBER 2019 Cash and cash equivalents Receivables Investments Borrowings Payables Investments Net increase/(decrease) in exposure from foreign currency forward contracts - sell foreign currency Net exposure Cash and cash equivalents Receivables Investments Borrowings Investments Net increase/(decrease) in exposure from foreign currency forward contracts - sell foreign currency Net exposure	USD ($) JPY ($) EURO ($) DKK ($) OTHER CURRENCIES ($) TOTAL ($) 5,470,852 785,491 64,522 - 289,036 6,609,901 1,733,846 40,188 - - 526,038 2,300,072 46,218,059 7,987,157 3,662,247 - 6,086,986 63,954,449 - (1,026,078) (18) - (211,285) (1,237,381) (2,092,813) (220) - - (11,584) (2,104,617) (3,272,473) (906,586) - - - (4,179,059)
	48,057,471 6,879,952 3,726,751 - 6,679,191 65,343,365
	- - - - - -
	48,057,471 6,879,952 3,726,751 - 6,679,191 65,343,365
	USD ($) JPY ($) EURO ($) DKK ($) OTHER CURRENCIES ($) TOTAL ($) 1,211,866 594,332 12,807 - 1,369,509 3,188,514 28,119 9,399 - - 18,015 55,533 66,879,210 877,134 5,977,236 - 4,077,759 77,811,339 (951,848) (654,494) (708,560) (90) (1,383,788) (3,698,780) (1,880,414) - (1,732,633) - (2,977,389) (6,590,436)
	65,286,933 826,371 3,548,850 (90) 1,104,106 70,766,170
	- - - - - -
	65,286,933 826,371 3,548,850 (90) 1,104,106 70,766,170

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

iv. Sensitivity analysis

The following tables show the sensitivity of the Company’s operating profit/(loss) to price risk, interest rate risk and foreign exchange risk. The reasonably possible movements in the risk variables have been determined based on management’s best estimate, having regard to a number of factors, including historical levels of changes in interest rates, historical correlation of the Company’s investments with the relevant benchmark and market volatility. However, actual movements in the risk variables may be greater or less than anticipated due to a number of factors, including unusually large market shocks resulting from changes in the performance of the securities in which the Company invests. As a result, historic variations in risk variables are not a definitive indicator of future variations in the risk variables.

30 September 2020 30 September 2019	PRICE RISK INTEREST RATE RISK FOREIGN EXCHANGE RISK Impact on operating profit/(loss) Impact on operating profit/(loss) Impact on operating profit/(loss)
	-10% +10% -100 bps +100 bps -10% +10% (6,045,968) 6,045,968 338 (338) (6,534,336) 6,534,336 (6,856,200) 6,856,200 4,600 (4,600) (7,076,617) 7,076,617

3. FAIR VALUE MEASUREMENT

The Company measures and recognises financial assets and liabilities held at fair value through profit or loss on a recurring basis. The Company has no assets or liabilities measured at fair value on a non-recurring basis in the current reporting period.

FAIR VALUE HIERARCHY

AASB 13: Fair value measurement requires disclosure of fair value measurements by level of the fair value hierarchy:

Level 1 - measurements based on quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 - measurements based on inputs other than quoted prices included in level 1 that are observable for the asset or liability; and
Level 3 - measurements based on unobservable inputs from the asset or liability.

i.

Recognised fair value measurements

The following table presents the Company’s assets measured and recognised at fair value as at 30 September 2020.

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

AS AT 30 SEPTEMBER 2020	LEVEL 1	LEVEL 2	LEVEL 3	TOTAL
	($)	($)	($)	($)
Financial assets
Listed equities	28,573,052	-	-	28,573,052
Listed unit trusts	34,216,332	-	-	34,216,332
Options	4,083	-	-	4,083
Swap contracts	-	4,508,197		4,508,197
Total financial assets at fair value through	62,793,467	4,508,197	-	67,301,664
profit or loss
Financial liabilities
Listed equities	2,950,212	-	-	2,950,212
Swap contracts	-	3,891,768	-	3,891,768
Total financial liabilities liabilities at fair value through profit or loss	2,950,212	3,891,768	-	6,841,980
AS AT 30 SEPTEMBER 2019	LEVEL 1	LEVEL 2	LEVEL 3	TOTAL
	($)	($)	($)	($)
Financial assets
Listed equities	16,946,590	-	-	16,946,590
Listed unit trusts	62,704,244	-	-	62,704,244
Options	43,716	-	-	43,716
Swap contracts	-	6,136,640	-	6,136,640
Total financial assets at fair value through	79,694,550	6,136,640	-	85,831,190
profit or loss
Financial liabilities
Listed equities	9,299,682	-	-	9,299,682
Listed unit trusts	1,588,245	-	-	1,588,245
Futures	731	-	-	731
Swap contracts	-	6,380,531	-	6,380,531
Total financial liabilities at fair value through	10,888,658	6,380,531	-	17,269,189
profit or loss

ii. Transfer between levels

Management’s policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period. There were no transfers between levels in the fair value hierarchy at the end of the reporting period.

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

iii. Fair value of financial instruments not carried at fair value

The carrying value of trade receivables and trade payables approximate their fair value because of the short-term nature of the instruments and low credit risk.

4. TAXATION

a) Numerical reconciliation of income tax (benefit)/expense Prima facie tax payable on profit before income tax 30.0% (FY19 27.5%) Adjusted for tax effect of amounts which are not deductible (taxable) in calculating taxable income: - Imputation gross up on dividends received - Franking credits on dividends received - Withholding tax on dividends received - Other differences Income tax expense Applicable weighted average effective tax rate The income tax expense results in a: - Current tax liability - Deferred tax asset - Deferred tax liability Income tax expense	YEAR ENDED 30 SEPTEMBER 2020 ($) YEAR ENDED 30 SEPTEMBER 2019 ($) 1,049,762 537,707 122 1,110 (407) (6,415) 50,822 97,212 (33,937) (82,106)
	1,066,362 547,508
	30.5% 28.0% 1,214,179 (115,361) 1,081,856 (270,605) (1,229,673) 933,474
	1,066,362 547,508

b) Movement in current tax liability Opening balance Income tax payment made Charged/credited to profit or loss Closing balance	YEAR ENDED 30 SEPTEMBER 2020 ($) YEAR ENDED 30 SEPTEMBER 2019 ($) - 590,361 (400,000) (475,000) 1,214,179 (115,361)
	814,179 -

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

c) Net deferred tax assets/(liabilities) Deferred tax liabilities Deferred income tax comprises the estimated tax payable at the current income tax rate of 30% (FY19 27.5%) on the following items: Tax on unrealised gains on investment portfolio Other Net deferred tax liabilities Movements Opening balance Charged/credited to profit or loss Closing balance Deferred tax assets Deferred tax assets comprise the estimated tax deductible at the current income tax rate of 30% (FY19 27.5%) on the following items: Transaction costs on equity issue Reduction in transaction costs on equity issue Other Tax losses for the year Net deferred tax assets Movements Opening balance Charged/credited - to profit or loss - to equity Closing balance	AS AT 30 SEPTEMBER 2020 ($) AS AT 30 SEPTEMBER 2019 ($) (947,565) (2,175,826) (17,070) (18,482)
	(964,635) (2,194,308)
	(2,194,308) (1,260,834) 1,229,673 (933,474)
	(964,635) (2,194,308)
	523,181 479,583 (410,393) (280,277) 32,687 139,450 - 844,977
	145,475 1,183,733
	1,183,733 926,933 (951,740) 359,176 (86,518) (102,376)
	145,475 1,183,733

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

5. EARNINGS PER SHARE

Basic earnings per share Diluted earnings per share Profit used in calculating basic earnings per share Profit used in calculating diluted earnings per share Weighted average number of ordinary shares used in the calculation of basic earnings per share Weighted average number of shares used in the calculation of diluted earnings per share	YEAR ENDED 30 SEPTEMBER 2020 ($) YEAR ENDED 30 SEPTEMBER 2019 ($) 4.61 cents 2.75 cents 4.61 cents 2.75 cents 2,432,846 1,407,789 2,432,846 1,407,789 52,815,392 51,194,540
	52,815,392 51,194,540

The weighted average number of shares used as a denominator in calculating basic and diluted earnings per share is based on the weighted average number of shares from 1 October 2019 to 30 September 2020.

Basic and diluted earnings per share is the same as there are no potentially dilutive securities outstanding as at balance date.

6. RECEIVABLES

Dividends receivable GST receivable Due from brokers - receivable for securities sold Total receivables	AS AT 30 SEPTEMBER 2020 ($) AS AT 30 SEPTEMBER 2019 ($) 57,053 55,533 21,585 21,369 2,243,019 -
	2,321,657 76,902

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

7. INVESTMENTS

Financial assets Listed equities Listed unit trusts Futures Options Swap contracts Total financial assets at fair value through profit or loss Financial liabilities Listed equities Listed unit trusts Futures Swap contracts Total financial liabilities at fair value through profit or loss	AS AT 30 SEPTEMBER 2020 ($) AS AT 30 SEPTEMBER 2019 ($) 28,573,052 16,946,590 34,216,332 62,704,244 4,083 - - 43,716 4,508,197 6,136,640
	67,301,664 85,831,190
	2,950,212 9,299,682 - 1,588,245 - 731 3,891,768 6,380,531
	6,841,980 17,269,189

8. DERIVATIVE FINANCIAL INSTRUMENTS

In the normal course of business the Company enters into transactions in various derivative financial instruments which have certain risks. A derivative is a financial instrument or other contract which is settled at a future date and whose value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index or other variable.

Derivative financial instruments require no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors.

Derivative transactions include a wide assortment of instruments, such as swaps, futures and options. Derivatives are considered to be part of the investment process. The use of derivatives is an essential part of the Company’s portfolio management. Derivatives are not managed in isolation. Consequently, the use of derivatives is multifaceted and includes:

hedging to protect an asset or liability of the Company against a fluctuation in market values or to reduce volatility;
a substitution for trading of physical securities; and
adjusting asset exposures within the parameters set in the investment strategy, and adjusting the duration of fixed interest portfolios or the weighted average maturity of cash portfolios.

The Company holds the following derivative instruments:

(a) Futures

Futures are contractual obligations to buy or sell financial instruments on a future date at a specified price established in an organised market. The futures contracts are collateralised by cash or marketable securities. Changes in futures contracts values are usually settled net daily with the exchange.

(b) Options

An option is a contractual arrangement under which the seller (writer) grants the purchaser (holder) the right, but not the obligation, either to buy (a call option) or sell (a put option) at or by a set date or during a set period, a specific amount of securities or a financial instrument at a predetermined price. The seller receives a premium from the purchaser in consideration for the assumption of future securities price risk. Options held by the Company are exchange-traded. The Company is exposed to credit risk on purchased options to the extent of their carrying amount, which is their fair value. Options are settled on a gross basis.

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

(c) Swaps

The fair value of interest rate swaps is the estimated amount that the Fund would receive or pay to terminate the swap at the reporting date, taking into account current interest rates and the current credit worthiness of the swap counterparties.

The Company’s derivative financial instruments at 30 September 2020 are detailed below.

AS AT 30 SEPTEMBER 2020 AS AT 30 SEPTEMBER 2019 Futures Swap contracts Futures Options Swap contracts	CONTRACTUAL / NOTIONAL VALUE FAIR VALUES ($) Assets ($) (Liabilities) ($) 4,818,326 4,083 - - 4,508,197 (3,891,768)
	4,818,326 4,512,280 (3,891,768)
	(1,727,250) - (731) 49,196 43,716 - - 6,136,640 (6,380,531)
	(1,678,054) 6,180,356 (6,381,262)

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

9. OFFSETTING FINANCIAL ASSETS AND LIABILITIES

Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The gross and net positions of financial assets and liabilities that have been offset in the statement of financial position are disclosed in the first three columns of the following table:

AS AT 30 SEPTEMBER 2020 AS AT 30 SEPTEMBER 2019 Financial assets Futures Swap contracts Total Financial liabilities Futures Swap contracts Total Financial assets Futures Swap contracts Options Total Financial liabilities Futures Swap contracts Options Total	EFFECTS OF OFFSETTING ON THE STATEMENT OF FINANCIAL POSITION Gross amount of financial instrument ($) Gross amounts set off in the statement of financial position ($) Net amount of financial assets/(liabilities) presented in the statement of financial position ($) 33,748 29,665 4,083 4,539,433 2,273,296 2,266,137	RELATED AMOUNTS NOT OFFSET Amounts subject to master netting arrangement ($) Net amount ($) - 4,083 - 2,266,137
	4,573,181 2,302,961 2,270,220	- 2,270,220

	(29,665) (29,665) - (2,273,296) (2,273,296) -	- - - -
	(2,302,961) (2,302,961) -	- -


	11,150 11,150 - 6,122,330 512,772 5,609,558 58,617 14,901 43,716	- - - 5,609,558 - 43,716
	6,192,097 538,823 5,653,274	- 5,653,274
	(11,881) (11,150) (731) (512,772) (512,772) - (14,901) (14,901) -	- (731) - - - -
	(539,554) (538,823) (731)	- (731)

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

10. PAYABLES

Other accruals Management fees payable Administration fees payable Interest payable Dividends payable on short positions Due to brokers - payable for securities purchased	AS AT 30 SEPTEMBER 2020 ($) AS AT 30 SEPTEMBER 2019 ($) 35,917 39,625 65,530 63,343 23,286 24,168 - 12,224 18,029 58,877 2,552,846 -
	2,695,608 198,237

11. ISSUED CAPITAL

Ordinary shares

Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote.

During the prior year 22,500 options issued pursuant to the terms contained in the Company's Prospectus dated 13 March 2017 were exercised in line with the exercise terms. Options not exercised lapsed on 30 November 2018.

Capital risk management

The Company’s policy is to maintain a strong capital base so as to maintain investor and market confidence. The overall strategy remains unchanged. To achieve this, the Board of Directors regularly monitor NTA results, investment performance and share price movements. The Board is focused on maximising returns to shareholders with capital management a key objective of the Company. The Company is not subject to any externally imposed capital requirements.

(a) Movements in ordinary share capital Opening balance Ordinary shares issued - placement Ordinary shares issued under Share Purchase Plan (SPP) Ordinary shares issued under dividend reinvestment plan Options exercised - issue of shares Costs of issued capital, net of tax Closing balance	YEAR ENDED 30 SEPTEMBER 2020 YEAR ENDED 30 SEPTEMBER 2019 Shares $ Shares $ 52,728,519 55,510,102 45,524,927 48,903,901 - - 6,832,000 6,353,760 - - 202,251 188,100 142,628 136,382 146,841 130,742 - - 22,500 24,750 - 43,598 - (91,151)
	52,871,147 55,690,082 52,728,519 55,510,102

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

(b) Movements in options Opening balance Options exercised, and related transfer to share capital Options lapsed Closing balance	YEAR ENDED 30 SEPTEMBER 2020 YEAR ENDED 30 SEPTEMBER 2019 Options $ Options $ - - 43,382,026 - - - (22,500) - - - (43,359,526) -
	- - - -

12. RESERVES AND ACCUMULATED LOSSES

(A) ACCUMULATED LOSSES (B) PROFITS RESERVE Balance at the beginning of the year Net profit attributable to members of the Company Transfer to profit reserve Balance at 30 September The reserve is made of amounts transferred from current and retained earnings that are preserved for future dividend payments. Balance at the beginning of the year Transfer from retained earnings/(losses) Dividends provided for or paid Balance at 30 September	YEAR ENDED 30 SEPTEMBER 2020 ($) YEAR ENDED 30 SEPTEMBER 2019 ($) (1,003,827) (827,095) 2,432,846 1,407,789 (2,731,248) (1,584,521)
	(1,302,229) (1,003,827)
	5,073,269 4,470,422 2,731,248 1,584,521 (1,055,580) (981,674)
	6,748,937 5,073,269

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

13. AUDITOR’S REMUNERATION

During the year the following fees were paid or payable for services provided by the auditor of the Company, its related practices and nonrelated audit firms:

related audit firms:
Pitcher Partners Audit and other assurance services Audit and other assurance services Taxation services Total remuneration for audit and other assurance services Other consulting and advisory services Total remuneration of Pitcher Partners	YEAR ENDED 30 SEPTEMBER 2020 ($) YEAR ENDED 30 SEPTEMBER 2019 ($) 57,219 47,773 10,268 9,800
	67,487 57,573
	8,262 1,227
	75,749 58,800

The Company's Audit Risk Committee oversees the relationship with the Company's External Auditors. The Audit Risk Committee reviews the scope of the audit and the proposed fee. It also reviews the cost and scope of other audit-related tax compliance services provided by the audit firm, to ensure that they do no compromise independence.

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

14. CASH FLOW INFORMATION

		AS AT		AS AT
	30	SEPTEMBER 2020	30	SEPTEMBER 2019
		($)		($)
(A) COMPONENTS OF CASH AND CASH EQUIVALENTS
Cash as at the end of the financial year as shown in the statement of cash flows is
reconciled to the statement of financial position as follows:
Cash at bank		7,050,184		15,287,804
Prime broker funding facility		(4,396,274)		(23,160,333)
		2,653,910		(7,872,529)
(B) RECONCILIATION OF NET PROFIT ATTRIBUTABLE TO MEMBERS		YEAR ENDED		YEAR ENDED
OF THE COMPANY TO NET CASH OUTFLOW FROM OPERATING	30	SEPTEMBER 2020	30	SEPTEMBER 2019
ACTIVITIES		($)		($)
Profit/(loss) attributable to members of the Company		2,432,846		1,407,789
Net (gains)/losses on financial instruments held at fair value through profit or loss		(5,287,846)		(2,764,391)
Net (gains)/losses on foreign exchange		646,939		(12,133)
Net change in prepayments		(8,504)		(5,496)
Net change in receivables		(1,736)		153,523
(Increase)/decrease in deferred tax assets		1,038,258		(256,800)
Tax effect on listing costs		43,598		(23,218)
Increase in deferred tax liabilities		(1,229,673)		933,474
(Decrease)/increase in current tax liabilities		814,179		(590,361)
Net change in payables		(55,475)		56,927
Net cash outflow from operating activities		(1,607,414)		(1,100,686)
		AS AT		AS AT
	30	SEPTEMBER 2020	30	SEPTEMBER 2019
		($)		($)
(C) NON-CASH FINANCING ACTIVITIES
During the year, the following dividend payments were satisfied by the issue of	136,382		130,742
shares under the dividend reinvestment plan

15. RELATED PARTY TRANSACTIONS

All transactions with related entities were made on normal commercial terms and conditions no more favourable than transactions with other parties unless otherwise stated.

a) Management and Performance Fees

Morphic Asset Management Pty Limited (Morphic) (ABN 33 155 937 901, AFSL 419916) has been appointed as the Investment Manager of the Company. The Manager is privately owned and was incorporated in 2012. Jack Lowenstein is a Director of the Manager.

i. Management fee

the Manager is entitled to be paid monthly a Management Fee equal to 1.25% (plus GST) per annum of the Value of the

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

Portfolio (payable monthly in arrears and calculated on the last business day of each month).

ii. Performance fee

the Manager is entitled to be paid by the Company a fee (Performance Fee) equal to 15% (plus GST) of the Portfolio’s outperformance relative to the MSCI All Countries Total Return Daily Index (“the Index”) in Australian dollars (Benchmark) over the 12-month period, subject to the Portfolio generating absolute gains since inception and the recoupment of prior underperformance.

Management fees paid to the Manager during the year were as follows:

	YEAR ENDED	YEAR ENDED
	30 SEPTEMBER 2020	30 SEPTEMBER 2019
	($)	($)
Management fees paid and payable during the year	788,020	729,917
Management fees payable at year end	65,530	63,343

There were no performance fees earned or paid during the year.

b) Remuneration of Directors and Other Key Management Personnel

In accordance with Section 300A of the Corporations Act 2001, all detailed information regarding the remuneration of Directors and other key management personnel has been included in the Remuneration Report in the Directors' Report of the Annual Report.

A summary of the remuneration of Directors and other key management personnel for the year is set out below:

Cash salary, fees and commissions Short-term employee benefits Superannuation Post-employment benefits Total employment benefits	YEAR ENDED 30 SEPTEMBER 2020 ($) YEAR ENDED 30 SEPTEMBER 2019 ($) 127,855 127,855
	127,855 127,855
	12,145 12,145
	12,145 12,145
	140,000 140,000

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ANNUAL REPORT

c) Shareholdings

2020	OPENING BALANCE	ACQUISITIONS	DISPOSALS	BALANCE AT
				30 SEPTEMBER 2020
Ordinary Shares
JoAnna Fisher	103,163	2,168	-	105,331
Jack Lowenstein	579,837	199,013	-	778,850
Mark Forstmann	41,266	867	-	42,133
Virginia Malley	53,954	1,131	-	55,085
Chad Slater	56,529	6,141	(7,261)	55,409

There has been no movement in the equity instruments held by the Directors between 30 September 2020 and the date of the Director's report

2019	OPENING	ACQUISITIONS	ACQUISITIONS	OPTIONS	OPTIONS	DISPOSALS	BALANCE AT
	BALANCE			EXERCISED			30 SEPTEMBER
							2019
Ordinary Shares
JoAnna Fisher	100,920		2,243		-	-	103,163
Jack Lowenstein	535,703		44,134		-	-	579,837
Mark Forstmann	40,368		898		-	-	41,266
Virginia Malley	52,780		1,174		-	-	53,954
Chad Slater	55,341		1,188		-	-	56,529
ptions to acquire shares
here were no options acquired or disposed during the year.
2019	OPENING	BALANCE	ACQUISITIONS		LAPSES/DISPOSALS		BALANCE AT
							30 SEPTEMBER 2019
Options
JoAnna Fisher		100,000		-		(100,000)	-
Jack Lowenstein		804,000		-		(804,000)	-
Mark Forstmann		160,000		-		(160,000)	-
Virginia Malley		52,300		-		(52,300)	-
Chad Slater		110,454		-		(110,454)	-

d) Options to acquire shares

There were no options acquired or disposed during the year.

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

16. CONTINGENT LIABILITIES AND COMMITMENTS

As at 30 September 2020, the Company had no contingent liabilities or commitments.

17. DIVIDENDS

YEAR ENDED YEAR ENDED 30 SEPTEMBER 2020 30 SEPTEMBER 2019 ($) ($)

(A) DIVIDENDS PAID IN THE CURRENT YEAR A fully franked final dividend on ordinary shares in respect of the 2019 year was declared by the Directors on 1 November 2019 of 1.00 cent per share and was paid on 17 December 2019 (2019: A fully franked final dividend on ordinary shares in respect of the 2018 year was declared by the Directors on 31 October 2018 of 1.00 cent per share and was paid on 12 December 2018) A fully franked interim dividend on ordinary shares was declared by the Directors on 21 May 2020 of 1.00 cent per share and was paid on 31 July 2020 (2019: A fully franked dividend on ordinary shares was declared by the Directors on 28 May 2019 of 1.00 cent per share and was paid on 19 July 2019) (B) dividend franking account Opening balance of franking account Prior year adjustment Franking credits on dividends received Franking credits on dividends paid Tax payments made Closing balance of franking account	527,286 455,474 528,294 526,200
	1,055,580 981,674
	70,234 10,103 - (567) 407 6,415 (400,392) (420,717) 400,000 475,000
	70,249 70,234

Following the payment of current year's tax liability of $814,179 the franking credits account balance will be $884,428, which will be available use in subsequent reporting periods.

This disclosure is for the franking credits available for use in subsequent reporting periods and is calculated as per paragraph 14 of AASB 1054.

The Company's ability to pay franked dividends is dependent upon the receipt of franked dividends from investments and the payment of tax.

18. SEGMENT INFORMATION

The Company has only one reportable segment and one industry. It operates predominantly in Australia and in the securities industry. It earns revenue from dividend income, interest income and other returns from the investment portfolio. The Company invests in different types of securities, as detailed at Note 7 Investments, and Note 3 Fair Value Measurement.

19. EVENTS SUBSEQUENT TO REPORTING DATE

Since the end of the year, the Directors declared a fully franked final dividend of 1.5 cents per share fully franked to be paid on 17 December 2020.

No other matters or circumstances have arisen since the end of the year which significantly affected, or may significantly affect, the

operations of the Company, the results of those operations or the state of affairs of the Company in future financial years.

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

DIRECTORS' DECLARATION

FOR THE YEAR ENDED 30 SEPTEMBER 2020

THE DIRECTORS DECLARE THAT:

a) In the Directors' opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001 , including compliance with Accounting Standards, and giving a true and fair view of the financial position as at 30 September 2020 and performance of the Company, for the year ended 30 September 2020;
b) In the Directors' opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable;
c) In the Directors' opinion, the attached financial statements are in compliance with International Financial Reporting Standards, as stated on Note 1(b) of the financial statements;
d) The Directors have been given the declarations required by S.295A of the Corporations Act 2001 ; and
e) The remuneration disclosures contained in the Remuneration Report comply with S300A of the Corporations Act 2001 .

Signed in accordance with a resolution of the directors made pursuant to S.295(5) of the Corporations Act 2001.

On behalf of the Directors

==> picture [141 x 57] intentionally omitted <==

JOANNA FISHER

Chairman Morphic Ethical Equities Fund Limited

Sydney, 3 November 2020

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

INDEPENDENT AUDIT REPORT TO THE MEMBERS

Independent Auditor’s Report to the Members of Morphic Ethical Equities Fund Limited ABN 52 617 345 123 Report on the Audit of the Financial Report

Opinion

We have audited the financial report of Morphic Ethical Equities Fund Limited (the Company), which comprises the statement of financial position as at 30 September 2020, the statement of comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of Morphic Ethical Equities Fund Limited is in accordance with the Corporations Act 2001 , including:

i. giving a true and fair view of the Company’s financial position as at 30 September 2020 and of its financial performance for the year then ended; and ii. complying with Australian Accounting Standards and the Corporations Regulations 2001

Basis of Opinion

We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Company in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) ( “the Code”) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.

We confirm that the independence declaration required by the Corporations Act 2001 , which has been given to the Directors of the Company, would be in the same terms if given to the Directors as at the time of this auditor’s report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

MORPHIC ETHICAL EQUITIES FUND LIMITED

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Independent Auditor’s Report

to the Members of Morphic Ethical Equities Fund Limited ABN 52 617 345 123

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matter How our audit addressed the matter Valuation, Existence and Completeness of Financial Assets and Liabilities Refer to Note 7: Investments

*Refer to Note 7: Investments*
We focused our audit effort on the existence,	Our	procedures included, amongst others:
completeness and valuation of the Company’s financial		Obtaining an understanding of the investment
assets and financial liabilities as they are its largest		management process and controls;
assets and liabilities and represent the most significant		Reviewing and evaluating the independent audit
driver of the Company’s Net Tangible Assets and profits.		reports on internal controls (ASAE 3402
		Assurance Reports on Controls at a Service
The Company’s investments are considered to be non-		Organisation) for the Custodians;
complex in nature with fair value based on readily		Reviewing and evaluating the independent audit
observable market data. Consequently, these investments		report on internal controls (ASAE 3402 Assurance
are classified under Australian Accounting Standards as		Reports on Controls at a Service Organisation) for
either “level 1” (i.e. where the valuation is based on		the Administrator;
quoted prices in active markets) or “level 2” (i.e. where		Making enquiries as to whether there have been
key inputs to valuation are based on other observable		any changes to these controls or their
inputs). All foreign investments are valued in presentation		effectiveness from the periods to which the audit
currency (Australian dollars) utilising the year end rates.		reports relate and where necessary performing
		additional procedures;
		Obtaining confirmations of the investment holdings
		directly from the Custodians;
		Recalculating and assessing the Company’s
		valuation of individual investment holdings to
		independent sources;
		Evaluating the accounting treatment of
		revaluations of financial assets and financial
		liabilities for current/deferred tax and unrealised
		gains or losses; and
		Assessing the adequacy of disclosures in the
		financial statements.

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

Independent Auditor’s Report

to the Members of Morphic Ethical Equities Fund Limited ABN 52 617 345 123

Key audit matter

How our audit addressed the matter

Accuracy and Completeness of Management and Performance Fees

Refer to Note 10: Trade and other payables, Note 15: Related party transactions

Our procedures included, amongst others:

We focused our audit effort on the accuracy of management and performance fees as they are significant expenses of the Company and their calculation requires adjustments for major events such as payment of company dividends and taxes, capital raisings and capital reductions in accordance with the Investment Management Agreement between the Company and the Investment Manager.

 Obtaining an understanding of and evaluating the processes and controls for calculating the management and performance fees;

Making enquiries with the Investment Manager and Those Charged with Governance with respect to any significant events during the period and associated adjustments made as a result, in addition to reviewing ASX announcements;



Testing of adjustments such as company dividends, tax payments, capital raisings, capital reductions as well as any other relevant expenses used in the calculation of management and performance fees;



In addition, to their quantum, as these transactions are made with related parties, there are additional inherent  risks associated with these transactions, including the potential for these transactions to be made on terms and conditions more favourable than if they had been with an independent third-party. 

 Testing key inputs used in the calculation of management and performance fees and recalculation in accordance with our understanding of the Investment Management Agreement;  Assessing the adequacy of disclosures made in the financial statements.

Other Information

The Directors are responsible for the other information. The other information comprises the information included in the Company’s Annual Report for the year ended 30 September 2020, but does not include the financial report and our auditor’s report thereon.

Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Directors for the Financial Report

The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error.

MORPHIC ETHICAL EQUITIES FUND LIMITED

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Independent Auditor’s Report

to the Members of Morphic Ethical Equities Fund Limited ABN 52 617 345 123

In preparing the financial report, the Directors are responsible for assessing the ability of the Company to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

Auditor’s Responsibilities for the Audit of the Financial Report

Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:  Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Directors.
Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation.

Auditor’s Responsibilities for the Audit of the Financial Report (continued)

We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.

From the matters communicated with the Directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

Independent Auditor’s Report

to the Members of Morphic Ethical Equities Fund Limited ABN 52 617 345 123

consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on the Remuneration Report

Opinion on the Remuneration Report

We have audited the Remuneration Report included in pages 20 to 24 of the Directors’ report for the year ended 30 September 2020. In our opinion, the Remuneration Report of Morphic Ethical Equities Fund Limited for the year ended 30 September 2020, complies with section 300A of the Corporations Act 2001 .

Responsibilities

The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

S M Whiddett Partner

Pitcher Partners Sydney

3 November 2020

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

SHAREHOLDER INFORMATION

FOR THE YEAR ENDED 30 SEPTEMBER 2020

The Shareholder information set out below was applicable at 30 September 2020.

Additional information required by the ASX Listing Rules and not disclosed elsewhere in this report, is listed below.

A. DISTRIBUTION OF SECURITIES

DISTRIBUTION OF EQUITY SECURITIES

Holding Ranges 1 to 1000 1001 to 5000 5001 to 10000 10001 to 100000 100001 and Over Total	INVESTORS SHARES PERCENTAGE (%)
	76 41,225 0.08 287 889,980 1.68 190 1,626,495 3.08 573 19,946,241 37.73 93 30,367,206 57.43
	1,219 52,871,147 100.00

B. EQUITY SECURITY HOLDERS

TWENTY LARGEST EQUITY SECURITY HOLDERS

Name	Shares	%
FUTURE GENERATION GLOBAL INVESTMENT COMPANY LIMITED	5,343,842	10.11
SYSHA PTY LTD	2,000,000	3.78
LEKK PTY LTD	1,800,000	3.40
NATIONAL NOMINEES LIMITED	1,483,598	2.81
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2	1,158,291	2.19
JORLYN PTY LTD	900,000	1.70
JAMES & DIANA RAMSAY FOUNDATION PTY LTD	754,545	1.43
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED	608,727	1.15
FAY FULLER FOUNDATION PTY LTD	604,545	1.14
MRS CATHERINE ANNE MARSON + MR JOSEPH MARSON	543,965	1.03
MR JACK THESEUS LOWENSTEIN	526,656	1.00
GEAT INCORPORATED	480,000	0.91
NETWEALTH INVESTMENTS LIMITED	386,800	0.73
G W HOLDINGS PTY LTD	376,365	0.71
BURKE SUPER FUND PTY LIMITED	375,000	0.71
NAMBIA PTY LTD	369,779	0.70
MR JAMES WILLIAM TAYLER	333,127	0.63
RELLIM HOLDINGS NO 2 PTY LIMITED	327,298	0.62
PW AND VJ COOPER PTY LIMITED	322,059	0.61
DURNANDCO PTY LTD	321,288	0.61

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

C. SUBSTANTIAL SHAREHOLDERS

Future Generation Global Investment Company Limited and its associated entities

10.11%

D. VOTING RIGHTS

The voting rights attaching to each class of equity security are set our below:

Each share is entitled to one vote when a poll is called, otherwise each member present at a meeting or by proxy has one vote on a show of hands. Options do not have any voting rights until they vest and are exercised.

E. STOCK EXCHANGE LISTING

Quotation has been granted for all of the ordinary shares and options of the Company on all Member exchanges of the ASX Limited.

F. UNQUOTED SECURITIES

There are no unquoted securities.

G. SECURITIES SUBJECT TO VOLUNTARY ESCROW

18,000 shares subject to voluntary escrow until 8 August 2021.

H. INVESTMENT TRANSACTIONS

There were 1,251 investment transactions during the year, total brokerage paid on these transactions was $276,858.

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

CORPORATE DIRECTORY

DIRECTORS	JoAnna Fisher (Chairman)
	Jack Lowenstein
	Mark Forstmann
	Virginia Malley
COMPANY SECRETARY	Jack Lowenstein
REGISTERED OFFICE	Level 11
	179 Elizabeth Street
	Sydney NSW 2000
CONTACT DETAILS	P: (02) 9021 7701
	www.morphicasset.com
SHARE REGISTRY	Computershare
	Level 4, 60 Carrington Street,
	Sydney NSW 2000
	P: (02) 8234 5000
	F: (02) 8234 5050
AUDITOR	Pitcher Partners
	Level 16, Tower 2 Darling Park
	201 Sussex Street
	Sydney NSW 2000
	P: (02) 9221 2099
STOCK EXCHANGE LISTINGS	Morphic Ethical Equities Limited securities are listed on the Australian Stock Exchange
	under the following exchange code:
	MEC

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

AI assistant

MORPHIC ETHICAL EQUITIES FUND LIMITED — Annual Report 2020

65309_rns_2020-11-02_818deeaa-02a1-46ee-80f4-59391d0a42be.pdf

APPENDIX 4E PRELIMINARY FINAL REPORT

DETAILS OF REPORTING PERIOD

FINAL DIVIDEND DATES

NET TANGIBLE ASSETS

DIVIDEND REINVESTMENT PLAN (DRP)

AUDIT

ANNUAL GENERAL MEETING (AGM)

MORPHIC ETHICAL EQUITIES FUND LIMITED

ANNUAL REPORT

CHAIRMAN'S LETTER TO SHAREHOLDERS

COMPANY PERFORMANCE

1. INVESTMENT PERFORMANCE

2. NTA PERFORMANCE

ANNUAL GENERAL MEETING

JOANNA FISHER

INVESTMENT MANAGER’S REPORT

OUTLOOK

Exhibit 1 Sector Performance, US Market (2010 - now)

PORTFOLIO COMPOSITION

INVESTMENT PORTFOLIO AT 30 SEPTEMBER 2020

DIRECTORS' REPORT

INFORMATION ON DIRECTORS

EXPERIENCE AND EXPERTISE

OTHER CURRENT DIRECTORSHIPS

FORMER DIRECTORSHIPS IN THE LAST 3 YEARS

SPECIAL RESPONSIBILITIES

INTERESTS IN SHARES AND OPTIONS

INTEREST IN CONTRACTS

EXPERIENCE AND EXPERTISE

OTHER CURRENT DIRECTORSHIPS

FORMER DIRECTORSHIPS IN THE LAST 3 YEARS

SPECIAL RESPONSIBILITIES

INTERESTS IN SHARES AND OPTIONS

INTEREST IN CONTRACTS

EXPERIENCE AND EXPERTISE

OTHER CURRENT DIRECTORSHIPS

FORMER DIRECTORSHIPS IN THE LAST 3 YEARS

SPECIAL RESPONSIBILITIES

INTERESTS IN SHARES AND OPTIONS

INTEREST IN CONTRACTS

VIRGINIA MALLEY | INDEPENDENT DIRECTOR

EXPERIENCE AND EXPERTISE

OTHER CURRENT DIRECTORSHIPS

FORMER DIRECTORSHIPS IN THE LAST 3 YEARS

SPECIAL RESPONSIBILITIES

INTERESTS IN SHARES AND OPTIONS

INTEREST IN CONTRACTS

EXPERIENCE AND EXPERTISE

FORMER DIRECTORSHIPS IN THE LAST 3 YEARS

SPECIAL RESPONSIBILITIES

INTERESTS IN SHARES AND OPTIONS

INTEREST IN CONTRACTS

COMPANY SECRETARY

JACK LOWENSTEIN

ATTENDANCE AT MEETINGS

BOARD OF DIRECTORS MEETINGS

AUDIT & RISK COMMITTEE MEETINGS

PRINCIPAL ACTIVITY

REVIEW OF OPERATIONS

INVESTMENT RETURNS

DIVIDENDS PAID OR RECOMMENDED

NET ASSETS

STATE OF AFFAIRS

EVENTS SUBSEQUENT TO BALANCE DATE

LIKELY DEVELOPMENTS

INSURANCE OF OFFICERS

ENVIRONMENTAL REGULATIONS

ROUNDING OF AMOUNTS TO NEAREST DOLLAR

REMUNERATION REPORT (AUDITED)

KEY MANAGEMENT PERSONNEL

JOANNA FISHER

JACK LOWENSTEIN

MARK FORSTMANN

VIRGINIA MALLEY

REMUNERATION REPORT

DIRECTOR RELATED ENTITY REMUNERATION

a) Management fee

MORPHIC ETHICAL EQUITIES FUND LIMITED Annual Report 2020