HOMELOANS LIMITED

ABN 55 095 034 003

FINANCIAL STATEMENTS

30 JUNE 2006

CONTENTS TO FINANCIAL REPORT

CORPORATE INFORMATION
DIRECTORS' REPORT
CORPORATE GOVERNANCE STATEMENT
INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2006
BALANCE SHEET AS AT 30 JUNE 2006
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2006
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2006 (CONTINUED) 29
CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2006
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006
DIRECTORS' DECLARATION
INDEPENDENT AUDIT REPORT TO MEMBERS OF HOMELOANS LIMITED

CORPORATE INFORMATION

This annual report covers both Homeloans Limited as an individual entity and the Consolidated entity's financial report incorporating the entities that it controlled during the financial year. The Consolidated entity's functional and presentation currency is AUD ($).

A description of the consolidated operations and of its principal activities is included in the review of operations and activities in the directors' report on pages 5 to 19. The directors' report is not part of the financial report.

Directors

Timothy Holmes (Non-Executive Chairman) Brian Jones (Managing Director) Robert Salmon (Non Executive Director) Robert Scott (Non Executive Director) Jarrod Smith (Finance Director)

Company Secretary

Jennifer Murray

Registered Office

Level 9, The Quadrant 1 William Street Perth WA 6000 (08) 9327 1777 Phone: Facsimile: (08) 9327 1778

Corporate Office

Level 7, BT Tower 1 Market Street Sydney NSW 2000 Phone: (02) 8267 2007 Facsimile: (02) 8267 2045

National Office

Level 2, The Atrium 168 St George's Terrace Perth WA 6000 Phone: (08) 9261 7000 Facsimile: (08) 9261 7079 Web site: www.homeloans.com.au

Postal Address

PO Box 7216 Cloisters Square Perth WA 6850

Share Registry

Computershare Investor Services Pty Ltd Level 2, Reserve Bank Building 45 St George's Terrace Perth WA 6000 Telephone: Facsimile:

(08) 9323 2000 (08) 9323 2033

Bankers

Westpac Institutional BankWestpac Place, Kent Tower275 Kent Street Sydney NSW 2000

Auditors

Ernst & YoungThe Ernst & Young Building11 Mounts Bay RoadPerth WA 6000

DIRECTORS' REPORT

Your directors submit their report for the year ended 30 June 2006.

DIRECTORS

The names and details of the company's directors in office during the financial year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated.

Names, qualifications, experience and special responsibilities

TIMOTHY ALASTAIR HOLMES (NON-EXECUTIVE CHAIRMAN)

Tim was appointed Chairman on 1 July 2003. He has 38 years experience in the finance and banking industry, is a Fellow of the Australian Institute of Company Directors, and Honorary Consul of Austria in WA. He is also the former International President of the Young President's Organisation and a former Vice President of the WA Chamber of Commerce and Industry.

ROBERT PETER SALMON (NON-EXECUTIVE DIRECTOR)

Appointed 9 November 2000. Rob has 36 years experience in the finance and banking industry. In 1985, Rob joined with Tim Holmes to establish International Financing and Investment Pty Ltd, the predecessor to Homeloans Limited. He has a Bachelor of Economics from the University of Western Australia.

BRIAN DONALD JONES (MANAGING DIRECTOR)

Brian was appointed to the board in an executive capacity on 28 May 2004. He has 40 years experience in the finance and banking industry. Brian was a senior executive with National Australia Bank from 1993 to 2003. Most recently he was head of the bank's Australian third party mortgage origination arm, HomeSide Lending. Prior to this he held senior positions with the bank's subsidiary, Bank of New Zealand Australia including Head of Consumer Markets and Head of Banking Services. He has a Master of Business Administration from the AGSM. Brian was appointed Managing director on 1 January 2006.

ROBERT NORMAN SCOTT (NON-EXECUTIVE DIRECTOR)

Appointed 9 November 2000. Rob is a Chartered Accountant with over 39 years experience. Rob was an International Partner with Arthur Andersen, retiring from that firm in 1995. Rob now consults on corporate structuring and taxation to Perth based Gooding Pervan Chartered Accountants.

Rob serves as a director of the following listed companies:

Amadeus Energy Ltd (Appointed 30 October 1996) Chairman
BioMD Limited (Appointed 23 June 1999) Chairman
Australian Renewable Fuels Limited (Appointed 24 December 2002) Chairman ٠
Evans & Tate Limited (Appointed 18 July 2005) ٠
New Guinea Limited (Appointed 17 July 2006)

JARROD LORNE ANDREW SMITH (FINANCE DIRECTOR)

Appointed 20 February 2006. Jarrod joined Homeloans Ltd as Chief Financial Officer in January 2002. Since that time he has been a key part of the company's executive team and has been instrumental in the company's recent cost cutting initiatives and the increasing penetration of Homeloans Ltd's proprietary funding line. Prior to joining Homeloans Ltd, Jarrod was a Director of Westpac Institutional Bank. Jarrod has a Bachelor of Commerce (UNSW), a Masters of Business Administration (AGSM) and is a graduate member of the Australian Institute of Company Directors.

JENNIFER MURRAY (COMPANY SECRETARY)

Jennifer Murray was appointed company secretary to Homeloans Ltd on 9 November 2000. She is a Chartered Secretary and has over 23 years experience in providing corporate secretarial services for both public and proprietary companies. She is presently the Senior Manager, Corporate Secretarial Services for Perth based Gooding Pervan Chartered Accountants.

Interests in the shares and options of the company and related bodies corporate.

As at the date of this report, the interests of the directors in the shares, reset preference shares, and options of Homeloans Limited were:

	Number of OrdinaryShares	Number of 10%ResetPreferenceShares	Number ofOptionsOver OrdinaryShares
T A Holmes	9,019,781	170,750	$\blacksquare$
B D Jones	225,952		2,000,000
R P Salmon	8,705,366	170.441	$\blacksquare$
R N Scott	1,489,794	29,458	$\blacksquare$
J L A Smith	82,723	208	1,350,000

DIVIDENDS

	Cents	$'000
Final dividends recommended:
- on ordinary shares	2.5	1,259

Dividends paid in the year:
Interim for the year
- on ordinary shares	2.5	1,259
Final dividend for 2005 shown asrecommended in the 2005 report
- on ordinary shares	1.5	755

PRINCIPAL ACTIVITIES

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

mortgage origination;
management of home loan mortgages for a number of financiers; and
funding of mortgages through the Residential Mortgage Trust (RMT)

The principal activities were conducted under the brand names Homeloans Limited, Access Home Loans and FAI Home Loans. As of the balance date, the Company has mortgage origination and management agreements with Adelaide Bank Limited, Origin Mortgage Management Services, ING Bank (Australia) Limited, Residential Mortgage Trust and other institutions.

OPERATING AND FINANCIAL REVIEW

Group Overview

Homeloans Limited is a company limited by shares that is incorporated and domiciled in Australia. The Company was incorporated on 9 November 2000 acquiring the assets and liabilities of IF & I Securities Pty Ltd (as trustee for the IF & I Securities Unit Trust) and Anedo Pty Ltd. On 19 March 2001, Homeloans Limited shares commenced trading on the Australian Stock Exchange.

Homeloans Limited has prepared a consolidated financial report incorporating the entities that it controlled during the financial year.

Review of operations

A review of operations of the consolidated entity during the financial year, the results of those operations, the changes in the state of affairs and the likely developments in the operations of the consolidated entity are set out in this report.

Performance Indicators

Management and the Board monitor the Consolidated entity's overall performance, from its implementation of the strategic plan through to the performance of the company against operating plans and financial budgets. The Board, together with management, have identified key performance indicators (KPIs) that are used to monitor performance. Management monitor KPIs on a regular basis. Directors receive the KPIs for review prior to each monthly board meeting allowing all directors to actively monitor the Consolidated Entity's performance.

Directors also have access to an on-line reporting database allowing access to details of performance against KPIs on a daily, month to date, and year to date basis.

Operating Results for the Year

The consolidated entity experienced an increase in loan originations of 14.8% on the prior corresponding year. A pleasing part of this was the increased penetration of the Homeloans Ltd proprietary funding line, the Residential Mortgage Trust ("RMT").

Revenue increased to $76,497,000 (2005: $71,727,000) primarily due to the increased usage of RMT. However, under AIFRS there is no origination income recognised on the RMT loans. Instead income is recognised as a net interest margin on the loans over the life of the loans. Consolidated net profit after tax for the year was $2,597,000 (2005:$2,492,000), up 4.2% on the previous corresponding period, reflecting a positive result from:

increased loan volumes; $\bullet$
continued cost reductions; and, ۰
the refund of the stamp duty assessment, and
an adverse result from the need to defer income recognition on RMT volumes. $\bullet$

Summarised operating results are as follows:

	2006
	Revenues$'000	Results$'000
Business segmentsOrigination and Management	37,009	7.155
Securitisation of Mortgages	51,580	342
	88,589	7,497
Consolidated entity adjustments	(13,028)	(3,746)
Non-segment and unallocated revenues	936	936
Non-segment and unallocated expenses		(1,060)
Consolidated entity sales and profit from ordinaryactivities before income tax expense	76,497	3.627

Shareholder Returns

The Consolidated entity is pleased to report that return to shareholders, both through dividends and capital growth, continues in line with measures implemented by management in the last 2 years. This is reflected in the significant improvement in most financial measures for the current year.

	AIFRS			Non-AIFRS
	2006	2005	2004^^	2003^^
Basic earning per share (cents)	5.16	3.95	1.73	(40.01)
Return on assets (%)	0.3%	0.4%	$1.7%$	(35.6%)
Return on equity (%)	8.1%	6.9%	2.9%	$(64.9%)$
Dividend payout ratio (%)	97.0%	30.3%	$0.0%$	$N/A**$

Debt to equity measures have not been disclosed due to the impact of the consolidation of RMT during the year. Consolidation of RMT has added over $650 million of debt to the Consolidated Entity's balance sheet without any commensurate impact on equity. RMT, under its trust structure, has assets and liabilities that offset and no equity interests. The traditional ratios do not provide an accurate measure of the Consolidated Entity's ability to manage its debts.

^^ These ratios were calculated under Australian Generally Accepted Accounting Practices (AGAAP). The results for 2005 and 2006 are calculated under Australian equivalents of International Financial Reporting Standards (AIFRS).

As a result of the AIFRS requirement under AASB 127 - Consolidated and Separate Financial Statements to consolidate the special purpose entity, Residential Mortgage Trust (RMT), significant assets have been added to the consolidated balance sheet without any appreciable increase in net profit. The group previously recognised the distributions from the RMT as revenue and was not required to include the RMT asset base. The unadjusted measure is using current AIFRS results.

**Dividend paid of 1.2 cents per share cannot be measured against reported loss for the relevant financial year.

Liquidity and Capital Resources

The consolidated entity's cash flow statement illustrates that there was an increase in cash and cash equivalents in the year ended 30 June 2006 of $8,628,000 (2005: Decrease of $11,413,000). The increase in cash inflow in comparison with the prior year is caused by a number of factors. Operating activities generated $8,980,000 (2005: $2,042,000) of net cash in-flows.

The increase in cash from operating activities was largely due to the continuation of tighter controls imposed on expenditure across the Consolidated entity's operations, new fees introduced, and more consistent fee charges across the Consolidated entity's product range. The increase in loans originated through RMT resulted in a significant increase in the net interest income collected.

There was an increase in receipts from funders of approximately 10% (2005: 2%) and the ratio of payments to suppliers as a percentage of receipts from customers improved slightly to 107% (2005: 109%).

The Consolidated entity has sufficient funds to finance its operations. The Consolidated Entity also has an overdraft facility of $900,000 which was unutilised at 30 June 2006, primarily to allow for timing mismatches. The Consolidated entity has a cash advance facility with its bankers at 30 June 2006 of $3,800,000 which was only drawn down to the extent of $1,000,000. The Residential Mortgage Trust has a net interest margin facility of $6,000,000 drawn to $5,377,000 and a warehouse facility of $500 million drawn to $60,531,000 at 30 June 2006.

Asset and capital structure

Profile of Debts	2006	2005
	$'000	$'000
The profile of the Consolidated entity's debt finance isas follows:
Lease liability - secured	1,061	1,559
HP liability - secured	101	157
Bank loans -- secured	66,908	219,901
Due to bondholders	635,915	294,164
Other Loans	3,529
Reset preference shares	4,998
	712,512	515,781

The amount of the Consolidated entity's debts have increased over the last year due to the increased usage of RMT.

Capital Expenditure

There has been a slight increase in cash used to purchase plant and equipment for 30 June 2006 to $199,000 from $168,000 in the year ended 30 June 2005.

Risk Management

The Board is responsible for overseeing the establishment and implementation by management of risk management systems and reviewing the effectiveness of these systems. The Board is assisted in this process by the Audit Committee, which has in its charter, responsibility for overseeing the effective operation of the company's risk management framework.

The fundamental aim of the company's risk management strategy is to balance risk against reward, and to optimise returns to all stakeholders. The company recognises 3 main types of risk:

Market risk the risk of change in earnings from changes in market factors such as interest rates, housing market and economic conditions;
Operational risk the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events; and
Liquidity risk the risk of failure to adequately fund cash demand in the short term.

The Managing Director and Finance Director periodically provide formal statements to the Board that in all material aspects:

the company's financial statements present a true and fair view of the company's financial condition and operational results; and
the risk management and internal compliance and control systems are sound, appropriate and operating efficiently and effectively.

The Board has a number of mechanisms in place to ensure that management's objectives and activities are aligned with the risks identified by the Board. These include the following:

Board approval of a strategic plan, which encompasses the Consolidated entity's vision, mission and strategy statements, designed to meet stakeholders' needs and manage business risk.
Implementation of Board approved operating plans and budgets and Board monitoring of progress against these budgets, including the establishment and monitoring of KPIs of both a financial and non-financial nature.
The establishment of committees to report on specific business risks, including for example, such matters as occupational health and safety.

Statement of Compliance

This report is based on the guidelines in The Consolidated entity of 100 Incorporation publication Guide to the Review of Operations and Financial Condition.

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

There were no significant changes in the state of affairs of the Consolidated entity during the financial year.

SIGNIFICANT EVENTS AFTER THE BALANCE DATE

There were no significant events after the balance date.

LIKELY DEVELOPMENTS AND EXPECTED RESULTS

Other than as referred to in this report, further information as to likely developments in the operations of the consolidated entity would, in the opinion of the directors, be likely to result in unreasonable prejudice to the consolidated entity.

ENVIRONMENTAL REGULATION AND PERFORMANCE

The Consolidated entity is not subject to any specific licence or agreement to comply with the requirements of environmental protection authorities in Australia.

SHARE OPTIONS

Unissued shares

As at the date of this report, there were 7,665,000 unissued ordinary shares under options.

Balance at 30 June 2006 (Note 15)	7,880,000
Options forfeited on resignation of staff since 30 June	215,000
Balance at the date of this report	7,665,000

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

No shares were issued as a result of the exercise of options during the year under review. No shares have been issued as a result of the exercise of options since the end of the financial year to the date of this report.

INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS

During or since the financial year, the company has paid premiums in respect of a contract insuring all the directors of Homeloans Limited against a liability incurred in their role as directors of the company, except where:

The liability arises out of conduct involving a wilful breach of duty; or $(a)$
There has been a contravention of Sections 182 or 183 of the Corporations Act 2001, $(b)$

as permitted by section 199B of the Corporations Act 2001.

Terms, conditions and rates are commensurate with the market. The policy prohibits disclosure of the nature of the indemnification and insurance cover, and the amount of the premium.

REMUNERATION REPORT

This report outlines the remuneration arrangements in place for directors and executives of Homeloans Limited (the company).

Remuneration philosophy

The performance of the company depends upon the quality of its directors and executives. To prosper, the company must attract, motivate and retain highly skilled directors and executives. To this end, the company embodies the following principles in its remuneration framework:

Provide competitive rewards to attract high calibre executives;
Link executive rewards to shareholder value;
Significant portion of executive remuneration 'at risk', dependent upon meeting pre-determined performance benchmarks; and,
Establish appropriate, demanding performance hurdles in relation to variable executive remuneration.

Nomination and Remuneration Committee

The Nomination and Remuneration Committee is responsible for determining and reviewing compensation arrangements for the directors, the chief executive officer (CEO) and the senior management team.

The Remuneration Committee assesses the appropriateness of the nature and amount of remuneration of directors and senior managers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality board and executive team.

Remuneration structure

In accordance with best practice corporate governance, the structure of non-executive director and senior manager remuneration is separate and distinct.

Non-executive director remuneration

Objective

The Board seeks to set aggregate remuneration at a level which provides the company with the ability to attract and retain directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders.

Structure

The Constitution and the ASX Listing Rules specify that the aggregate remuneration of non-executive directors shall be determined from time to time by a general meeting. An amount not exceeding the amount determined is then divided between the directors as agreed. At last year's annual general meeting the aggregate maximum sum available for the remuneration of non-executive directors was increased to $250,000 per anum with effect from and including 1 January 2006.

The amount of aggregate remuneration sought to be approved by shareholders and the manner in which it is apportioned amongst directors is reviewed annually. The board considers advice from external consultants as well as the fees paid to non-executive directors of comparable companies when undertaking the annual review process.

Each director receives a fee for being a director of the company.

Homeloans Limited-Annual Report

Non-executive directors have long been encouraged by the board to hold shares in the company (purchased by the director on market). It is considered good governance for directors to have a stake in the company whose board he or she sits. The remuneration of non-executive directors for the period ending 30 June 2006 is detailed in Table 1 on page 15 of this report.

Senior manager and executive director remuneration

Objective

The company aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the company and so as to:

reward executives for company, business unit and individual performance against targets set by reference to appropriate benchmarks;
align the interests of executives with those of shareholders; and
link reward with the strategic goals and performance of the company.

Structure

In determining the level and make-up of executive remuneration, the Nomination and Remuneration Committee will, from time to time, engage an external consultant to provide independent advice both in the form of a written report detailing market levels of remuneration for comparable executive roles as well as the participation of the independent consultant in the meeting from which the Nomination and Remuneration Committee makes its recommendations to the Board.

Remuneration consists of the following key elements:

Fixed Remuneration
Variable Remuneration
- Short Term Incentive ('STI'); and
- $\overline{a}$ Long Term Incentive ('LTI').

The proportion of fixed remuneration and variable remuneration (potential short term and long term incentives) is established for each senior manager by the Nomination and Remuneration Committee. Table 2 on page 15 details the variable component of the 5 most highly remunerated senior managers.

Fixed remuneration

Objective

The level of fixed remuneration is set so as to provide a base level of remuneration which is both appropriate to the position and is competitive in the market.

Fixed remuneration is reviewed annually by the Nomination and Remuneration Committee and the process consists of a review of companywide, business unit and individual performance, relevant comparative remuneration in the market and internal and, where appropriate, external independent advice on policies and practices.

Structure

The fixed remuneration component is usually paid in cash.

The fixed remuneration component of the 5 most highly remunerated senior managers is detailed in Table 2 on page 15.

Variable remuneration - Short term incentive (STI)

Objective

The objective of the STI program is to link the achievement of the company's operational targets with the remuneration received by the executives charged with meeting those targets. The total potential STI available is set at a level so as to provide sufficient incentive to the senior manager to achieve the operational targets and such that the cost to the company is reasonable in the circumstances.

Structure

Typically included are measures such as contribution to net profit after tax, loan originations, customer service, risk management, product management, and leadership/team contribution. The company has predetermined benchmarks which must be met in order to trigger payments under the short term incentive scheme. These measures are designed so as to align employee behaviour with long term shareholder wealth creation.

On an annual basis, after consideration of performance against KPIs, an overall performance rating for the company and each individual business unit is approved by the Nomination and Remuneration Committee. The individual performance of each executive is also rated and all three ratings are taken into account when determining the amount, if any, of the short term incentive pool that is allocated to each executive.

The aggregate of annual STI payments available for executives across the company is subject to the approval of the Nomination and Remuneration Committee. Payments made are usually delivered as a cash bonus.

Variable remuneration - Long term incentive (LTI)

Objective

The objective of the LTI plan is to reward senior managers in a manner which aligns this element of remuneration with the creation of shareholder wealth.

As such LTI grants are only made to executives who are able to influence the generation of shareholder wealth and thus have a direct impact on the Company's performance against the relevant long term performance hurdle.

Structure

LTI grants to executives are delivered in the form of options.

These options vest with the executive over varying periods and are not usually subject to a performance hurdle. They usually have a life from date of grant of five years, and are exercisable at specific dates and proportions set at the time of granting the options. Usually 50% of these options are exercisable after two years with the remaining 50% exercisable after three years.

Table 3 on page 16 provides details of options granted, the value of options, vesting periods and lapsed options under the LTI plan.

Employment contracts

No executives are currently employed under a fixed term contract.

Upon termination all vested options remain in place.

Managing Director

Under his conditions of employment, the employment of the Managing Director may be terminated:

by the Company by giving 12 months notice; or,
by the Managing Director giving the Company 3 months notice.

The Company may make a payment in lieu of requiring the service of the notice period.

Upon termination of employment, the Managing Director is also entitled to his statutory entitlements to accrued annual and long service leave.

Upon termination of employment by the Managing Director giving notice, the Managing Director is entitled to any STI than would otherwise be payable.

Finance Director

Under his conditions of employment, the employment of the Finance Director may be terminated by either party, by giving 3 months notice. The Company may make a payment in lieu of requiring the service of the notice period.

Upon termination of employment, the Finance Director is entitled to his statutory entitlements to accrued annual and long service leave.

Upon termination of employment, the Board has discretion to direct the forfeiture, or to pay the benefit of, any award made under either the STI or LTI plan that remain subject to the satisfaction of any performance or other criteria.

Mortgage Asset Services Pty Ltd

The services of the General Manager Sales are provided by way of a contract with Mortgage Asset Services Pty Ltd ("MAS"). This contract may be terminated by either party, by giving 3 months notice.

Should the Company terminate the contract prior to 31 December 2007, then MAS is entitled to six months payment and any unvested options from those granted on 7 December 2005 will vest, provided loan origination volumes are within 90% of the hurdle volumes.

Other Key Management Personnel

Under their conditions of employment the employment of the Key Management Personnel may be terminated by either party, by giving 1 months notice. The Company may make a payment in lieu of requiring the service of the notice period.

Upon termination of employment, the Key Management Personnel are entitled to their statutory entitlements to accrued annual and long service leave.

Upon termination of employment the Board has discretion to direct the forfeiture, or to pay the benefit of, any award made under either the STI or LTI plan that remain subject to the satisfaction of any performance or other criteria.

Remuneration of directors and named executives

TABLE 1: DIRECTORS' REMUNERATION FOR THE YEAR ENDED 30 JUNE 2006

		Primary benefits			Post employment		Equity	Other	Total	%performancerelated
		Salary &Fees	Non.monetary	Cash STI	Superannuation	Retirementbenefits	Options
T.A.Holmes	2006	166.723	2.767	$\mathbf{w}$	11.630			$\overline{\phantom{a}}$	181.120	0%
	2005	160.218	2.986	$\overline{\phantom{a}}$	89.629			$\mathbf{w}$	252.833	0%
B.D.Jones	2006	275,000	4.854	-	24.750		75.887	$\tilde{\phantom{a}}$	380,491	0%
	2005	231.528	4.612	300,000	20.838		103.030	$\mathbf{w}$	660.008	61%
R.P.Salmon	2006	154.223	2.767	$\mathbf{w}$	11.630			$\mathbf{w}$	168.620	0%
	2005	160.218	2.986	$\sim$	89.629			$\overline{\phantom{a}}$	252.833	0%
R.N.Scott	2006	50.000		$\mathbf{w}$				$\mathbf{w}$	50,000	$0%$
	2005	42,500		$\omega$	$\omega$			$\tilde{\phantom{a}}$	42,500	0%
J.L. Smith	2006	240.000	4.854	60,000	21,600		77.726	$\mathbf{w}$	404.181	34%

TABLE 2: REMUNERATION OF THE 5 NAMED EXECUTIVES WHO RECEIVED THE HIGHEST REMUNERATION FOR THE YEAR ENDED 30 JUNE 2006

		Primary benefits		Post employment		Equity	Other	Total	%performancerelated
		Salary &	Non	Cash STI	Superannuation	Retirement	Options
		Fees	monetary			benefits
L.McDonald	2006	150,000	4.854	50.000	13.500		11.375	$\omega$	229.729	27%
K.Carter	2006	125.000	2.767	40.000	11.250		15.725	w	194.742	29%
A.Curr	2006	117.500	AMP	25.000	10.575		8.950	$\omega$	162.025	21%
T.Phillips **	2006	282.271	$\mathbf{w}$			$\mathbf{w}$	24,186	$\sim$	306,457	62%
	2005	73.020	ALC				148.222	$\tilde{\phantom{a}}$	221,242	100%
G.McFadden	2006	130.000	$\omega$	10,000	11.770		4.600	$\omega$	156.370	9%
	2005	129.987	$\omega$	5.000	12.149	$\tilde{ }$	.412	$\omega$	148.548	4%

** Troy Phillips is a director of Morfgage Asset Services Pty Ltd (MAS). His services as General Manager Sales for the Consolidated Entity are remunerated by way of a monthly commission payment to MAS based on mortgages settled during the previous month. This amounted to $282,271 (2005: $73,020) in the current financial year. MAS also holds 2,500,000 options over unissued shares in Homeloans Limited. The amortised value of these options during the year has been included. None of the remuneration noted above was actually paid directly to Troy Phillips.

The options on issue to MAS include 750,000 options exercisable any time from grant date with the balance subject to performance hurdles. These hurdles are as follows:

1,000,000 options exercisable if home foan settlements in any 3 month period prior to 31 March 2007 exceed an average $225m per month.
250,000 options exercisable if home loan settlements in any 3 month period prior to 30 Sept 2006 exceed an average $100m per month.
250,000 options exercisable if home loan settlements in any 3 month period prior to 31 March 2007 exceed an average $112.5m per month.
250,000 options exercisable if home loan settlements in any 3 month period prior to 31 Dec 2007 exceed an average $137.5m per month.

Homeloans Limited-Annual Report

TABLE 3: OPTIONS GRANTED AS PART OF REMUNERATION FOR THE YEAR ENDED 30 JUNE 2006

(IN ACCORDANCE WITH THE LTI PLAN)

	Grant date	Grantnumber	Vest	Value peroption atgrant date@	ExercisedNumber	Value per option atexercise date	Value at dateoption lapsed	$%$ ofremuneration
B.D.Jones	23/11/05	315,000	31/08/06	0.1459	Not applicable	Not applicable	Not applicable	5.2%
	23/11/05	310,000	31/08/07	0.1294	Not applicable	Not applicable	Not applicable	2.0%
J.L.A.Smith	14/10/05	100,000	31/08/06	0.1859	Not applicable	Not applicable	Not applicable	3.7%
	14/10/05	150,000	31/08/07	0.1583	Not applicable	Not applicable	Not applicable	2.2%
	20/02/06	200,000	31/08/06	0.1535	Not applicable	Not applicable	Not applicable	5.2%
	20/02/06	300,000	31/08/07	0.1363	Not applicable	Not applicable	Not applicable	1.8%
T.Phillips **	7/04/06	250.000	30/09/06	0.1456	Not applicable	Not applicable	Not applicable	4.6%
	7/04/06	250.000	31/03/07	0.1154	Not applicable	Not applicable	Not applicable	1.4%
	7/04/06	250,000	31/12/07	0.1058	Not applicable	Not applicable	Not applicable	0.6%
L.McDonald	14/10/05	30,000	31/08/06	0.1859	Not applicable	Not applicable	Not applicable	2.0%
	14/10/05	45,000	31/08/07	0.1583	Not applicable	Not applicable	Not applicable	$0.9%$
K. Carter	14/10/05	50,000	31/08/06	0.1859	Not applicable	Not applicable	Not applicable	3.9%
	14/10/05	75,000	31/08/07	0.1583	Not applicable	Not applicable	Not applicable	1.7%
A. Curr	14/10/05	30.000	31/08/06	0.1859	Not applicable	Not applicable	Not applicable	2.6%
	14/10/05	45.000	31/08/07	0.1583	Not applicable	Not applicable	Not applicable	1.2%
G.McFadden	14/10/05	10,000	31/08/06	0.1859	Not applicable	Not applicable	Not applicable	1.0%
	14/10/05	15.000	31/08/07	0.1583	Not applicable	Not applicable	Not applicable	0.4%

@ From 1 July 2002, options granted as part of senior manager remuneration have been valued using a Binomial option pricing model, which takes account of factors including the option exercise price, the current level and volatility of the underlying share price, the risk-free interest rate, expected dividends on the underlying share, current market price of the underlying share and the expected life of the option.

** Refer to Note on Table 2 Page 15.

Fair values of options:

The fair value of each option is estimated on the date of grant using a Binomial option-pricing model with the following weighted average assumptions used for grants made:

Grant Date	29 Apr 2002	2 May 2002	2 May 2002	Apr 2003	Dec 2004	7 Dec 2004	14 Jan 2005
Dividend yield	3.0%	3.0%	3.0%	$3.0%$	3.0%	3.0%	3.0%
Expected volatility	38%	44%	44%	38%	45%	45%	45%
Risk-free interest rate	5.532%	5.442%	5.518%	4.700%	4.905%	4.900%	5.005%
Expected life of option	4.9 vears	4.9 vears	4.9 vears	4.8 vears	5.0 vears	5.0 vears	4.9 vears

Grant Date	14 Oct 05	14 Oct 05	23 Nov 05	23 Nov 05	20 Feb 06	20 Feb 06	7 Apr 06	Apr 06	Apr 06
Dividend yield	3.0%	s.0%	3.0%	3.0%	3.0%	3.0%	3.0%	3.0%	3.0%
Expected volatility	45%	45%	45%	45%	45%	45%	45%	45%	45%
Risk-free interest rate	.266%	5.276%	5.143%	5.157%	5.052%	5.048%	5.423%	5.337%	5.337%
Expected life of option	3.9 years	vears	3.8 vears	4.8 vears	3.5 vears	4.5 vears	vears	vears	vears

The dividend yield reflects the assumption that the current dividend payout will continue with no anticipated increases. The expected life of the options is based on period from grant date to expiry as so far no options have been exercised, and is therefore not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.

The resulting weighted average fair values per option for those options vesting after 1 July 2005 are:

Number	Grant Date	Vesting date	Weighted Average	Vesting Details
			Fair Value Per Option
100.000	1 Apr 2003	21 Jan 2006.	$0.1398	100% vested
950.000	14 Jan 2005	14 Dec 2006	$0.1420	475,000 vest on 14 Dec 2006 and 475,000 vest on 14 Dec 2007
1.030.000-	14 Oct 2005	31 Aug 2006	$0.1693	412,000 vest on 31 Aug 2006 and 618,000 vest on 31 Aug 2007
500.000	20 Feb 2006	31 Aug 2006	$0.1432	200,000 vest on 31 Aug 2006 and 300,000 vest on 31 Aug 2007
615,000	23 Nov 2005	31 Aug 2006	$0.1377	315,000 vest on 31 Aug 2006 and 310,000 vest on 31 Aug 2007
1,000,000	7 Dec 2004.	31 Mar 2007	$0.0924	Vesting will only occur if settlements targets are met.
750.000	7 Apr 2006	30 Sep 2006	$0.1223	250,000 to vest on 30 Sep 2006, 250,000 to vest on 31 Mar
				2007 and a further 250,000 to vest on 31 Dec 2007. Vesting will
				only occur if settlements targets are met.

COMPANY PEFORMANCE AND SHAREHOLDER RETURNS

The Consolidated entity is pleased to report that return to shareholders, both through dividends and increased share price, is now reflecting the numerous changes effected by the Board and management over the past 2 years. This is highlighted by the significant improvement in most financial measures for the current year as listed below:

	AIFRS			Non-AIFRS
	2006	2005	2004^^	2003^^
Basic earnings per share (cents)	5.16	3.95	1.73	(40.01)
Return on assets (%)	0.3%	0.4%	1.7%	(35.6 %)
Return on equity (%)	8.1%	6.9%	2.9%	(64.9%
Dividend payout ratio (%)	97.0%	30.3%	0.0 %	$NA^*$
Total Shareholder Return (TSR)
Share price (cents)	10.5	0.0	(7.5)	(32.5)
Dividends (cents)	5.0	1.5	0.0	1.2
	15.5	1.5	(7.5)	(31.3)

۸۸ These ratios were calculated under Australian Generally Accepted Accounting Practices (AGAAP). The results for 2005 and 2006 are calculated under Australian equivalents of International Financial Reporting Standards (AIFRS).

* Dividend paid of 1.2 cents per share in 2003 cannot be measured against reported loss for the relevant financial year.

The share price increased during the financial year under review and at the date of this report has shown the benefit of our improved performance with a strong appreciation since the end of the financial year. It is pleasing to see this reflected in the Total Shareholder return measure which is now showing a positive trend. The Board is confident that, as a result of the initiatives in place to increase mortgage origination volumes, increase the penetration of the Homeloans managed securitisation vehicle and continue cost control measures, the Consolidated entity will continue to improve profitability.

DIRECTORS' MEETINGS

The number of meetings of directors (including meetings of committees of directors) held during the year and the number of meetings attended by each director was as follows:

	Directors'Meetings	Audit Committee	Nominations andRemunerationCommittee
Number of meetings held:	12	2
Number of meetings attended:
T. A. Holmes	12	2	2
R. P. Salmon	12	2	2
R. N. Scott	12	2	2
B. D. Jones	11	$\blacksquare$
J.L.A.Smith	$3^*$

* There were 3 Director's meetings held during the period in which J.L.A. Smith was in office.

Committee Membership

As at the date of this report, the company had an Audit Committee and the Nomination and Remuneration Committee.

Members acting on the committees of the Board during the year were:

Audit

R.N Scott (Chairman) T.A.Holmes R.P.Salmon

Nomination and Remuneration Committee

T.A.Holmes (Chairman) R.N Scott R.P.Salmon

ROUNDING

The amounts contained in this report and in the financial report have been rounded to the nearest $1,000 (where rounding is applicable) under the option available to the company under ASIC Class Order 98/0100. The company is an entity to which the Class order applies.

AUDITOR INDEPENDENCE AND NON-AUDIT SERVICES

The directors received the required declaration from the auditor of Homeloans Limited as to their compliance with auditor independence requirements of the Corporations Act. This declaration is shown on the next page and forms part of this report.

Non-Audit Services

The following non-audit services were provided by the entity's auditor, Ernst & Young. The directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act. The nature and scope of each type of nonaudit service provided means that auditor's independence was not compromised.

Ernst & Young received or are due to receive the following amounts for the provision of non-audit services:

Tax compliance services

$21,583

Signed in accordance with a resolution of the directors

Timothy A. Holmes Executive Chairman

6 October 2006

EIFRNST & YOU INC.

# The Ernst & Young Building 11 Nounts Bay Read Perris WA 6000 Australia

■ 1d 61091292222 Tax 61 8 9429 2436

CPO Box M939 Penh WA 6843

Auditor's Independence Declaration to the Directors of Homeloans Limited

In relation to our audit of the financial report of Homeloans Limited for the financial year ended 30 June 2006, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct.

$kmA + \frac{hc}{2}$

Ernst & Young

R A Kirkby Partner Perth

6 October 2006

CORPORATE GOVERNANCE STATEMENT

The Board of Homeloans Ltd is committed to maintaining the highest standards of corporate governance. Corporate Governance establishes the framework for how the Board oversees the company and performs its functions on behalf of shareholders. The Board believes that good governance should be fully embedded in the company's framework and culture.

The Principles of Good Corporate Governance and Best Practice Recommendations published in March 2003 by the Australian Stock Exchange Corporate Governance Council, the Commonwealth Government's CLERP 9 reforms and the Australian Standard AS8000 Good Governance Principles have been examined in developing the company's corporate governance principles.

Due to the size of the company's operations, the Board is of the belief that a number of the ASX's recommendations are not appropriate or in the best interest of shareholders. In these cases, the board has elected not to follow the recommendations.

Homeloans Limited's corporate governance practices were in place throughout the year ended 30 June 2006 and were fully compliant with the Council's best practice recommendations except where noted.

For further information on corporate governance policies adopted by Homeloans Limited refer to our website:

www.homeloans.com.au/Corp/CorporateGovernance.aspx

Structure of the Board

The Board consists of directors with an appropriate mix of skill and experience, from different backgrounds, whom together provide the necessary breadth and depth of experience to meet the Board's roles and responsibilities.

The size of the Board is determined by the company's constitution which specifies a minimum of 3 and a maximum of 7 directors. The Board presently consists of 3 non-executive directors and 2 executive directors.

Board Responsibilities

The Board of Homeloans Ltd has the following responsibilities:

oversee the conduct of the company's business to evaluate whether the business is being properly managed and to ensure that it is conducted in an honest and ethical manner;
ensure that adequate procedures are in place to identify the principal risks of the company's business and delegate the implementation of appropriate systems to manage these risks to Board Committees and management;
select, appoint, evaluate the performance of, determine the remuneration of, plan for the successor of, and removal of the Managing Director;
ensure that adequate plans and procedures are in place for succession planning, including appointing, training and monitoring the performance of senior management;
adopt a strategic planning process and review the company's financial objectives and major corporate plans and actions; and
perform other functions as prescribed by law, or assigned to the Board to maximise shareholder value.

The Board of Directors may delegate the above responsibilities to its committees, a director or any other person of authority to perform any of its functions and exercise any of its powers.

Ultimate responsibility for the management and control of the company is vested in the directors, who may then delegate their power to management. The Board has a Delegation of Authority schedule in place, which is reviewed regularly.

An independent director is a non-executive director (i.e. is not a member of management) and:

is not a substantial shareholder of the company or an officer of, or otherwise associated directly with, a substantial shareholder of the company;
within the last three years has not been employed in an executive capacity by the company or another Consolidated member;
within the last three years has not been a principal of a material professional adviser or a material consultant to the company or another Consolidated entity member, or an employee materially associated with the service provided:
is not a material supplier or customer of the company or other Consolidated member, or an officer of or otherwise associated directly or indirectly with a material supplier or customer;
has no material contractual relationship with the company or another Consolidated member other than as a director of the company; and
is free from any interest and any business or other relationship, which could, or could reasonably be perceived to, materially interfere with the director's ability to act in the best interests of the company.

It is the Board's view that Mr R.N. Scott is an independent non-executive director. The Board does not consist of a majority of independent directors.

The Board of Directors believes that it is hard to justify a larger Board given the size of the company's operations. They are also of the opinion that the company is actually benefiting from having the company's founders give of their experience in the industry and have a financial interest.

The term in office held by each director in office at the date of this report is as follows:

Name	Term in Office	Term in Office
T.A Holmes	5yrs 11 months B.D Jones	2 yrs 4 months
R.P Salmon	5yrs 11 months J.L.A. Smith	7.5 months
R.N Scott	Syrs 11 months

For additional details regarding Board appointments, please refer to our website.

Chairman of the Board

The Chairman of the Board is a non-executive director but is not an independent director. The Board believes that the Company benefits from the Chairman having a significant financial interest in the Company. Mr R N Scott is the lead independent director.

Succession Planning

The Board plans succession of its own members in conjunction with the Board Nomination and Remuneration Committee, taking into account the skill and experience of current board members and the company's future direction and needs.

The Board retains overall responsibility for succession planning of the Managing Director, via the Nomination and Remuneration Committee. The Nomination and Remuneration Committee and the Managing Director are responsible for the succession planning of other senior executives.

Review of Board and Senior Executives' Performance

The Board reviews its overall performance, the performance of Board Committees and the performance of each individual director annually. The performance of directors is subject to annual peer review.

The Managing Director's performance is reviewed annually by the Board and is assessed on achievement of the targets and applicable budgets.

Senior executives participate in an annual performance review process which involves the establishment of performance objectives and measures, and the review of achievement. The process also involves assessment of remuneration tied to the company achieving its goals.

Conflict of Interest

Directors are required to disclose private or other business interests and any other matters which may lead to potential or actual conflict of interest to the Board.

Director's dealings with the company will always be at arm's length to avoid the possibility of actual and perceived conflict of interest.

Any director who has a material personal interest in a matter being considered by the Board must not be present when the matter is being considered and may not vote on the matter.

Nomination and Appointment of New Directors

The Board's Nomination and Remuneration Committee has the responsibility for reviewing the membership of the Board on an annual basis to ensure the appropriate skill mix of the board as a whole.

Procedure for the selection and appointment of new directors:

The Nomination and Remuneration Committee identifies the required skills, experience, and other qualities required of new directors;
Potential candidates are then interviewed by members of the Nomination and Remuneration Committee and a short list prepared;
The Board meets to consider the potential candidates, which is followed by Board members having the opportunity to interview any prospective candidate; and
An appointment is then made by the Board.

Rotation of Directors

The company's constitution specifies that one third of the Board, excluding the Managing Director, must retire from the office and stand for re-election at each Annual General Meeting. Further, each director, excluding the Managing Director, must stand for re-election every 3 years.

Code of Conduct

The Company has a Code of Conduct to quide the directors, key management personnel as to:

the practices necessary to maintain confidence in the company's integrity;

the responsibility and accountability of individuals for reporting and investigating reports of unethical practices: and.

the guidelines for trading in the Company's securities.

Board Access to Information and Advice

All directors have access to any employees, company advisers, records and information they may require to carry out their duties. The Board also receive regular financial and operational reports from executive management.

Directors have the right to seek independent professional advice in connection with their duties and responsibilities at the company's expense, to help them carry out their responsibilities. Prior notification to the Chairman, or the Board's approval is required.

Board Education

The Board is committed to ensuring that new directors are familiar with the company's businesses. New directors are provided with an orientation and education program. Directors may undertake continuing education courses at the company's expense, with the prior approval of the Chairman or the Board.

Board Committees

There are currently two Board Committees whose powers and procedures are governed by the company's Constitution and the relevant Committee's charter. Other Committees may be established from time to time to consider matters of special importance.

The Board uses its committees to support it in matters which require more intensive review. Each committee has a written charter, approved by the Board defining its duties, reporting procedures and authority. Minutes from all Committee meetings are tabled at Board meetings.

Copies of the Board Committee charters are available on the company's website.

Nomination and Remuneration Committee

The primary duties of the committee are to:

review the Board size and composition (mix of skill, experience and other competencies);
determine and review position descriptions of directors and the Managing Director;
develop and implement a process for the orientation and education of new directors;
review and advise the Board on the remuneration of directors and senior management in light of company goals and objectives;
recommend to the Board the succession plan for key senior management positions; and
evaluate the effectiveness of the Board, its Committees and individual directors.

For a full discussion of the company's remuneration philosophy and framework and the remuneration received by directors and executives in the current period please refer to the remuneration report, which is contained within the Directors' Report.

Audit Committee

The primary functions of the Audit Committee are to:

evaluate the adequacy and effectiveness of the internal control system and implement a risk management framework;
appoint, monitor and review the activities of the company's external auditors;
monitor the effectiveness and independence of the auditors;
review and report to the board on the company's annual and half-year financial statements, and its accounting policies and principles adopted;
ensure adequate compliance controls; and
review and recommend any appropriate amendments to corporate governance policies and framework.

The Audit Committee consists of three non-executive directors and an independent chairman. Owing to the size of the board and the fact that there is only one independent director it is not possible for the majority of the committee to comprise of independent directors.

For details of the number of meetings of the Audit Committee held during the year and the attendees at those meetings, refer to page 18 of the Directors' Report.

The members of the Audit Committee during the year were: Mr R.N. Scott (Chairman), Mr R.P. Salmon, Mr T.A. Holmes

Qualifications of audit committee members were:

R.N Scott CA R.P Salmon BA Economics T.A Holmes

Performance

The Board reviews its overall performance, the performance of Board Committees and the performance of each individual director annually. The performance of directors is subject to annual peer review.

The Managing Director's performance is reviewed annually by the Board and is assessed on achievement of the targets and budget applicable.

INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2006

		CONSOLIDATED		HOMELOANSLIMITED
	Note	2006$'000	2005$'000	2006$'000	2005$'000

Interest income	4(a)	45,806	38,580	162	69
Interest expense	4(d)	(36, 824)	(32, 843)	(670)	(456)
Net interest income		8,982	5,737	(508)	(387)
Fees and commission income	4(b)	29,410	32,792	29,963	28,520
Fees and commission expense	4(e)	(19, 129)	(15, 200)	(15, 653)	(13, 509)
Other operating income	4(c)	1,281	355	5,834	6,241
Impairment losses on loans andadvances
General administrative expenses		(5,940)	(7, 522)	(5,683)	(7,034)
Other operating expenses		(10, 977)	(12, 474)	(10, 518)	(11, 750)
Profit before income tax		3,627	3,688	3,435	2,081
Income tax expense	5	(1,030)	(1, 196)	(1, 152)	(739)
Net profit after income tax		2,597	2,492	2,283	1,342
Net profit attributable to membersof the Homeloans Limited		2,597	2,492	2,283	1,342

Basic earnings per share (cents pershare)	6	5.16	3.95
Diluted earnings per share		4.03	3.70
Unfranked dividend (cents per share)Ordinary shares		2.50	1.50

BALANCE SHEET AS AT 30 JUNE 2006

		CONSOLIDATED		HOMELOANSLIMITED
	Note	2006$'000	2005$'000	2006$'000	2005$'000
ASSETS
Cash assets	8	25,574	16,946	300	769
Receivables	9	11,652	10,074	11,180	8,575
Loans and advances to customers	10	686,855	496,855
Deferred expenses	11	19,514	22,149	19,514	19,895
Other financial assets	12	17		19,195	19,178
Plant and equipment	13	1,672	1,957	1,672	1,957
Goodwill	14	15,996	15,996
TOTAL ASSETS		761,280	563,977	51,861	50,374
LIABILITIES
Payables	16	9,383	6,045	11,721	8,932
Interest-bearing liabilities	17	707,514	515,781	2,162	4,691
Reset preference shares	18	4,998		4,998
Lease incentives	19	561	665	561	665
Deferred income tax liabilities	5	5,944	4,788	3,690	3,119
Provisions	20	680	573	680	573
TOTAL LIABILITIES		729,080	527,852	23,812	17,980
NET ASSETS		32,200	36,125	28,049	32,394
EQUITY
Issued capital	21	48,624	53,395	48,624	53,395
Reserves	21	367	102	367	102
Accumulated losses	21	(16, 791)	(17, 372)	(20, 942)	(21, 103)
TOTAL EQUITY		32,200	36,125	28,049	32,394

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2006

	Attributable to equity holders of the parent
	IssuedCapital$'000	AccumulatedLosses$'000	OtherReserves$'000	Total$'000
CONSOLIDATED
At 1 July 2004	53,395	(19,360)	6	34,041
Profit for the year		2,492		2,492
Cost of share-based payment *			96	96
Equity dividends		(504)		(504)
At 30 June 2005	53,395	(17, 372)	102	36,125
At 30 June 2005	53,395	(17, 372)	102	36,125
Adoption of AASB 132 and AASB 139effective 1 July 2005 *
- reset preference shares now treated as aliability	(4, 771)	(134)		(4,905)
- reset preference dividend paid in respectof prior financial period		(42)		(42)
- net loss on recognition of derivativeinstruments		(46)		(46)
- net gain on recognition of financial assetsand liabilities associated with the presentvalue of future trailing commission incomeand expenses		415		415
- tax effect of above adjustments		(195)		(195)
At 1 July 2005	48,624	(17, 374)	102	31,352
Profit for the year		2,597		2,597
Cost of share-based payment*			265	265
Equity dividends		(2,014)		(2,014)
At 30 June 2006	48,624	(16, 791)	367	32,200

* Please refer Note 30 for details of all movements in equity arising from AIFRS.

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2006 (CONTINUED)

	Attributable to equity holders of the parent
	IssuedCapital	AccumulatedLosses	OtherReserves	Total
	S.	$	$	$
PARENT
At 1 July 2004	53,395	(21, 941)	6	31,460
Profit for the year		1,342		1,342
Cost of share-based payment *			96	96
Equity dividends		(504)	$\blacksquare$	(504)
At 30 June 2005	53,395	(21, 103)	102	32,394

At 30 June 2005	53,395	(21, 103)	102	32,394
Adoption of AASB 132 and AASB 139effective 1 July 2005 *
- reset preference shares now treated as aliability	(4, 771)	(134)		(4,905)
- reset preference dividend paid in respectof prior financial period		(42)		(42)
- tax effect of above adjustments		68		68
At 1 July 2005	48,624	(21, 211)	102	27,515
Profit for the year		2,283		2,283
Cost of share-based payment*			265	265
Equity dividends		(2,014)		(2,014)
At 30 June 2006	48,624	(20, 942)	367	28,049

* Please refer Note 30 for details of all movements in equity arising from AIFRS.

CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2006

		CONSOLIDATED		HOMELOANSLIMITED
	Note	2006$'000	2005$'000	2006$'000	2005$'000
Cash flows from operating activities
Interest received		46,570	38,260	133	71
Interest paid		(35, 577)	(32, 715)	(579)	(451)
Loan fees and other income		35,531	39,451	25,866	30,043
Salaries and other expenses		(37, 462)	(42, 945)	(21, 892)	(25, 760)
Income taxes paid		(82)	(9)	(79)
Net cash flows from operatingactivities	8	8,980	2,042	3,449	3,903
Cash flows from investing activities
Acquisition of Match FundsManagement Limited	22		(262)		(262)
Purchase of plant and equipment		(199)	(168)	(199)	(168)
Refund of stamp duty claim		861		861
Loan to associate		(17)		(17)
Bond issuance costs		(716)	(154)
Net loans (advanced)/repaymentsfrom borrowers		(190,000)	65,579	(245)
Net cash flows (used in)/frominvesting activities		(190, 071)	64,995	400	(430)
Cash flows from financing activities(Repayments to)/proceeds from		(153, 978)
warehouse facility		6,488	130,716	1,500
Proceeds from borrowings			(2, 247)	(3,804)	(2, 234)
Repayment of borrowings(Repayments to)/proceeds frombondholders		(2,529)341,751	(206, 415)
Payment of dividends	7	(2,014)	(504)	(2,014)	(504)
Net cash flows from/(used in)financing activities		189,719	(78, 450)	(4, 318)	(2,738)
Net increase/(decrease) in cash held		8,628	(11, 413)	(469)	735
Add: Opening cash brought forward		16,946	28,359	769	34
Closing cash carried forward	8	25,574	16,946	300	769

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006

Note 1: CORPORATE INFORMATION

The financial report of Homeloans Limited for the year ended 30 June 2006 was authorised for issue in accordance with a resolution of directors on 2 October 2006.

Homeloans Limited is a company limited by shares incorporated and domiciled in Australia. On 19 March 2001, Homeloans Limited shares commenced trading on the Australian Stock Exchange.

The nature of the operations and principal activities of the Consolidated entity are described in note 3.

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

$(a)$ Basis of preparation

The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001 and Australian Accounting Standards. The financial report has also been prepared on a historical cost basis, except for derivative financial instruments and certain financial liabilities, which have been measured at fair value.

The Consolidated entity provides mortgage origination services and housing loans and is a financial institution to which AASB 130 "Disclosures in the Financial Statements of Banks and Similar Financial Institutions" applies.

The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($'000) unless otherwise stated under the option available to the Company under ASIC Class Order 98/0100. The Company is an entity to which the class order applies.

$(b)$ Statement of compliance

The financial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the financial report, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards (IFRS).

This is the first year financial report prepared based on Australian Equivalents to International Financial Reporting Standards ("AIFRS") and except for financial institutions comparatives for the full-year ended 30 June 2005 have been restated accordingly. From 1 July 2005, the Consolidated Entity elected to take the exemption under AASB 1 First Time Adoption of Australian Equivalents to International Financial Reporting Standards to apply AASB 139 Financial Instruments: Recognition and Measurement and AASB 132 Financial Instruments: Disclosure and Presentation from 1 July 2005.

For information on previous accounting policies, refer to the 30 June 2005 full financial report under previous AGAAP.

Reconciliations of AIFRS equity and profit for 30 June 2005 to the balances reported in the 30 June 2005 financial report and at transition to AIFRS are detailed in note 30.

A summary of the significant accounting policies of the Consolidated entity under AIFRS are disclosed below.

AASBAmendment	Affected Standard(s)	Nature of changeto accountingpolicy	Applicationdate ofstandard	Applicationdate forCompany
2005-1	AASB 139: FinancialInstruments: Recognition andMeasurement	No change toaccounting policyrequired. Thereforeno impact	1 January2006	1 July 2006
2005-5	AASB 1: First-time adoptionof AIFRS, AASB 139:Financial Instruments:Recognition and Measurement	No change toaccounting policyrequired. Thereforeno impact	1 January2006	1 July 2006
2005-10	AASB 132: FinancialInstruments: Disclosure andPresentation, AASB 101:Presentation of FinancialStatements, AASB 114:Segment Reporting, AASB117: Leases, AASB 133:Earnings per share, AASB139: Financial Instruments:Recognition and Measurement,AASB 1: First-time adoptionof AIFRS, AASB 1023:General Insurance Contactsand AASB 1038: LifeInsurance Contracts	No change toaccounting policyrequired. Thereforeno impact	1 January2007	1 July 2007
2006-1	AASB 121: The Effects ofChange in Foreign CurrencyRates	No change toaccounting policyrequired. Thereforeno impact	1 January2006	1 July 2006
NewStandard	AASB 7: FinancialInstruments: Disclosures	No change toaccounting policyrequired. Thereforeno impact	1 January2007	1 July 2007
New UIG	UIG 4: Determining whetheran Arrangement contains aLease	No change toaccounting policyrequired. Thereforeno impact	1 January2006	1 July 2006

* Application date is for the annual reporting periods beginning on or after the date shown in the above table.

The following amendments are not applicable to the Company and therefore have no impact.

AASB	Amendment Affected Standard(s)
	AASB 1: First time adoption of AIFRS, AASB 101: Presentation of Financial
2004-3	Statements, AASB124: Related Party Disclosures
2005-4	AASB 139: Financial Instruments: Recognition and Measurement,
	AASB 132: Financial Instruments: Disclosure and Presentation, AASB
	1: First-time adoption of AIFRS, AASB 1023: General Insurance
	Contracts and AASB 1028: Life Insurance Contracts
2005-6	AASB 3: Business Combinations
2005-9	AASB 4: Insurance Contracts, AASB 1023: General Insurance Contracts,
	AASB 139: Financial Instruments: Recognition and Measurement and
	AASB 132: Financial Instruments: Disclosure and Presentation
AASB 119	AASB 119 Employee Benefits
NEW UIG	UIG 5: Rights to Interests in Decommissioning, Restoration and
	Environmental Rehabilitation Funds
NEW UIG	UIG 6: Liabilities Arising form Participating in a Specific Market -
	Waste Electrical and Electronic Equipment
NEW UIG	UIG 7: Applying the Restatement Approach under AASB 129 Financial
	Reporting in Hyperinflationary Economies
NEW UIG	UIG 8: Scope of AASB 2
NEW UIG	UIG 9: Reassessment of Embedded Derivatives

$(c)$ Basis of consolidation

The consolidated financial statements comprise the financial statements of Homeloans Limited and its subsidiaries as at 30 June each year (the Consolidated entity). The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.

In preparing the consolidated financial statements, all inter-company balances and transactions, income and expenses and profit and losses resulting from intra-Consolidated transactions have been eliminated in full. Subsidiaries are fully consolidated from the date on which control is transferred to the Consolidated entity and cease to be consolidated from the date on which control is transferred out of the Consolidated entity.

(d) Investment in associate

Investments in associates are accounted for using the equity method of accounting in the consolidated financial statements. An associate is an entity in which the Consolidated entity has significant influence and which is neither a subsidiary nor a joint venture.

Under the equity method, the investment in the associate is carried in the consolidated balance sheet at cost plus post-acquisition changes in the Consolidated entity's share of net assets of the associate. Goodwill relating to an associate is included in the carrying amount of the investment and is not amortised. After application of the equity method, the Consolidated entity determines whether it is necessary to recognize any additional impairment loss with respect to the Consolidated entity's net investment in the associate. The consolidated income statement reflects the Consolidated entity's share of the results of operations of the associate.

Where there has been a change recognised directly in the associate's equity, the Consolidated entity recognises its share of any changes and discloses this in the consolidated statement of recognised income and expense

$(e)$ Leases

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

Operating leases

The minimum lease payments of operating leases, where the lessor effectively retains substantially all of the risks and benefits of ownership of the leased item, are recognised as an expense on a straight-line basis.

Contingent rentals are recognised as an expense in the financial year in which they are incurred. Lease incentives are recognised in the income statement as an integral part of the total lease.

Finance leases

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

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

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

$(f)$ Goodwill

Goodwill on acquisition is initially measured at cost being the excess of the cost of the business combination over the acquirer's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities.

Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised.

Goodwill is reviewed for impairment annually, or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

As at the acquisition date, any goodwill acquired is allocated to each of the cash-generating units expected to benefit from the combination's synergies.

Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates.

Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation.

Goodwill disposed of in this circumstance is measured on the basis of the relative values of the operation disposed of and the portion of the cash-generating unit retained.

$(q)$ Share-based payment transactions

The Consolidated entity provides benefits to employees (including directors) and to business partners of the Consolidated entity in the form of share-based payment transactions, whereby the recipients render services in exchange for shares or rights over shares ('equity-settled transactions').

There is currently an Employee Share Scheme in place which provides benefits to directors and senior executives.

The cost of these equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined by the use of a binomial model.

In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the share of Homeloans Limited ('market conditions').

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award ('vesting date').

The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects:

(i) the extent to which the vesting period has expired; and

(ii) the number of awards that, in the opinion of the directors of the Consolidated, will ultimately vest.

This opinion is formed based on the best available information at balance date. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition.

Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any increase in the value of the transaction as a result of the modification, as measured at the date of modification.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph.

The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per share.

At balance date, the Consolidated entity did not have on issue any options with attaching market based performance conditions.

$(h)$ Revenue recognition

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

Origination and loan management business-Managed Loans

Application fee revenue received in respect of loans is recognised when the service has been provided:
Origination commissions are recognised as revenue once the origination of the loan has been completed:
Management commission income in respect of loans is recognised once the management service has been provided.

Origination of Non-managed Loans

The company receives trailing commissions from lenders on settled loans over the life of the loan based on the loan book balance outstanding to which the Consolidated entity is entitled to without having to perform further services. The company makes trailing commission payments to brokers and commission staff based on the amounts received under the trailing commission arrangement.
On initial recognition, trailing commission revenue and receivables are recognised at fair value, being the expected future trailing commission receivables discounted to their net present value. In addition, an associated payable and expense to the brokers and commissioned staff are also recognised, initially at fair value being the future trailing commission payable to brokers and commissioned staff discounted to their net present value.
Subsequent to initial recognition and measurement, both the trailing commission asset and trailing commission payable are measured at amortised cost. The carrying amount of the trail commission asset and trailing commission payable are adjusted to reflect actual and revised estimated cash flows by recalculating the carrying amount through computing the present value of estimated future cash flows at the original effective interest rate. The resulting adjustment is recognised as income or expense in the Income Statement.

Securitisation of mortgages

Interest income from loans and advances operated by the Residential Mortgage Trusts is recognised as it accrues using the effective interest method.

$(i)$ Borrowing costs

Borrowing costs are recognised as an expense when incurred.

$\mathbf{d}$ Cash and cash equivalents

Cash on hand and in banks and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less.

For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

Receivables $(k)$

Trade receivables are recognised and carried at the original invoice amount less a provision for any uncollectible debts. An estimate for doubtful debts is made when there is objective evidence of impairment. Bad debts are written-off as incurred.

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

Bills of exchange and promissory notes are measured at the lower of cost and net realizable value.

$\mathbf{I}$ Derecognition of financial instruments

The derecognition of a financial instrument takes place when the Consolidated entity no longer controls the contractual rights that comprise the financial instrument, which is normally the case when the instrument is sold, or all the cash flows attributable to the instrument are passed through to an independent third party.

The Consolidated entity utilises a special purpose vehicle (SPV), which issues securities to investors. This SPV meets the criteria of being a 'subsidiary' under AASB 127 - Consolidated and separate financial statements. This transaction does not meet the criteria under AASB 139 Financial Instruments: Recognition and Measurement in regards to derecognition of financial instruments. Accordingly, the value of the securitised loans has been recorded in the balance sheet with the related interest earned and interest paid recognised through the consolidated income statement.

Recoverable amount of assets $(m)$

At each reporting date, the Consolidated entity assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Consolidated entity makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount.

Recoverable amount is the greater of fair value less costs to sell and value in use. It is determined for an individual asset, unless the asset's value in use cannot be estimated to be close to its fair value less costs to sell and it does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

Recoverable amount of financial assets $(n)$

The Consolidated entity assesses at each balance sheet date whether a financial asset or group of financial assets is impaired.

$(i)$ Financial assets carried at amortised cost

If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate (ie the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through use of an allowance account. The amount of the loss is recognised in profit or loss.

The Consolidated entity first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in profit or loss, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date.

Loans and advances $(0)$

All loans and advances are initially recognised at fair value and include transaction costs associated with the loans and advances.

Loans and advances are subsequently measured at amortised cost using the effective interest method.

Amortised cost is calculated by taking into account any fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transactions costs, and all other premiums or discounts on acquisition, over the period to maturity.

Gains and losses are recognised in income when the loans and advances are derecognised or impaired, as well as through the amortisation process.

Plant and equipment $(p)$

Cost and valuation

Items of plant and equipment are measured at cost less accumulated depreciation and any impairment in value.

Depreciation

Depreciation is provided on a straight-line basis on all plant and equipment over the estimated useful life of the asset as follows:

Plant and equipment - over 5 to 15 years.

Impairment

The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.

For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

If any such indication exists and where the carrying value exceeds the estimated recoverable amount, the assets or cash generating units are written down to their recoverable amount.

The recoverable amount of plant and equipment is the greater of a fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset.

Any gain or loss arising on derecognising of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the Income Statement in the period the item is derecognised.

$(q)$ Trade and other payables

Liabilities for trade creditors and other amounts are carried at amortised cost.

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

Interest-bearing loans and borrowings $(r)$

All loans and borrowings are initially recognised at fair value.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method other than those which are measured at fair value through the profit and loss. Amortised cost is calculated by taking into account any fees paid or received between parties to the contract that are an integral part of the effective interest rate, transactions costs, and all other premiums or discounts on acquisition, over the period to maturity.

Gains or losses are recognised in the income statement when the liabilities are derecognised and also as well as through the amortisation process.

$(s)$ Reset preference shares

Reset Preference Shares are classified as debt within the Balance Sheet and measured at amortised cost. Distributions to the holders are treated as interest expense in the Income Statement and are not deductible for tax purposes. The costs associated with the issue of the Reset Preference Shares are charged to the Income Statement on an effective yield basis.

$(t)$ Provisions

Provisions are recognised when the economic entity has a legal, equitable or constructive obligation to make a future sacrifice of economic benefits to other entities as a result of past transactions or other past events and it is probable that a future sacrifice of economic benefits will be required and reliable estimate can be made of the amount of the obligation.

The expense relating to any provision is presented in the income statement net of any reimbursement.

If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

A provision for dividends is not recognised as a liability unless the dividends are declared, determined or publicly recommended on or before the reporting date.

$(u)$ Deferred expenses

Mortgage origination costs relating to managed loans that are directly attributable to establishing specific loans, other than those funded by a Residential Mortgage Trust, and which would not have been incurred had these contracts not been entered into, have been deferred. They are amortised at a rate of 2.335% (2005: 2.335%) per month on a reducing balance basis. This rate is equal to the long-term average monthly run-off rate applicable to the underlying loan book upon which the management income is earned.

Taxes $(v)$

Income tax

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused assets and unused tax losses can be utilised:

Except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affect neither the accounting profit nor taxable profit or loss; and
In respect of deductible temporary differences associated with investments in subsidiaries, and associates, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred income tax assets is reviewed at each balance date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Income taxes relating to items recognised directly in equity are recognised in equity and not in the income statement.

(w) Goods and services tax (GST)

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

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

The net amount of GST recoverable from, or pavable to, the taxation authority is included as part of receivables or payables in the Balance Sheet.

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

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

Investments and other financial assets $(x)$

The Consolidated entity has elected to apply the option available under AASB 1 of adopting AASB 132 and AASB 139 from 1 July 2005. Outlined below are the relevant accounting policies for investments and other financial assets applicable for the years ending 30 June 2006 and 30 June 2005.

Accounting policies applicable for the year ending 30 June 2006

Financial assets in the scope of AASB 139 Financial Instruments: Recognition and Measurement is classified as either financial assets at fair value through profit or loss, loans and receivables, held-tomaturity investments, or available-for-sale investments, as appropriate. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transactions costs. The Consolidated entity determines the classification of its financial assets after initial recognition and, when allowed and appropriate, reevaluates this designation at each financial year-end.

All regular way purchases and sales of financial assets are recognised on the trade date i.e. the date that the Consolidated entity commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets under contracts that require delivery of the assets within the period established generally by regulation or convention in the marketplace.

Financial assets at fair value through profit or loss

Financial assets classified as held for trading are included in the category 'financial assets at fair value through profit or loss'. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on investments held for trading are recognised in profit or loss.

Held-to-maturity investments

Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity when the Consolidated entity has the positive intention and ability to hold to maturity. Investments intended to be held for an undefined period are not included in this classification. Investments that are intended to be held-to-maturity, such as bonds, are subsequently measured at amortised cost. This cost is computed as the amount initially recognised minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initially recognised amount and the maturity amount. This calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums and discounts. For investments carried at amortised cost, gains and losses are recognised in profit or loss when the investments are derecognised or impaired, as well as through the amortisation process.

Available-for-sale investments are those non-derivative financial assets that are designated as availablefor-sale or are not classified as any of the three preceding categories. After initial recognition availablefor sale investments are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is recognised in profit or loss.

The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date. For investments with no active market, fair value is determined using valuation techniques. Such techniques include using recent arm's length market transactions; reference to the current market value of another instrument that is substantially the same; discounted cash flow analysis and option pricing models.

Accounting policies applicable for the year ending 30 June 2005

Listed shares held for trading were carried at net market value. Changes in net market value were recognised as a revenue or expense in determining the net profit for the period.

All other non-current investments were carried at the lower of cost and recoverable amount.

Recoverable amount

Non-current financial assets measured using the cost basis were not carried at an amount above their recoverable amount, and when a carrying value exceeded this recoverable amount, the financial asset was written down to its recoverable amount. In determining recoverable amount, the expected net cash flows were discounted to their present value using a market determined risk adjusted discount rate of 15.2%.

Derivative financial instruments $(v)$

The Consolidated entity uses derivative financial instruments such as interest rate swaps to manage its risks associated with interest rate fluctuations. Such derivative financial instruments are stated at fair value. For derivatives that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are taken directly to the income statement.

The fair value of interest rate swap contracts is determined by reference to market values for similar instruments.

$(z)$ Employee benefits

Provision is made for employee benefits accumulated as a result of employees rendering services up to the reporting date. These benefits include wages and salaries, annual leave, sick leave and long service leave.

Liabilities arising in respect of wages and salaries, annual leave, sick leave and any other employee benefits expected to be settled within twelve months of the reporting date are measured at their nominal amounts based on remuneration rates which are expected to be paid when the liability is settled. All other employee benefit liabilities are measured at the present value of the estimated future cash outflow to be made in respect of services provided by employees up to the reporting date. In determining the present value of future cash outflows, the market yield as at the reporting date on national government bonds, which have terms to maturity approximating the terms of the related liability, are used.

Employee benefit expenses and revenues arising in respect of the following categories:

wages and salaries, non-monetary benefits, annual leave, long service leave, sick leave and other leave benefits; and
other types of employee benefits

Are recognised against profits on a net basis in their respective categories.

$(aa)$ Earnings per share

Basic EPS is calculated as net profit attributable to members, adjusted to exclude costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares, outstanding during the period, adjusted for any bonus element.

Diluted EPS is calculated as net profit attributable to members, adjusted for the after tax effect of:

Costs of servicing equity (other than dividends) and preference share dividends; $\bullet$
Dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and
Other non discretionary changes in revenues and expenses during the period that would result from the dilution of potential ordinary shares, divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element.

$(bb)$ Provision for impairment of loans and advances

Provision is made for impaired loans when there is objective evidence that the principal amount of the loan can be collected in accordance with the terms of the loan agreement.

The Consolidated entity provides for impaired loans based on the difference between the carrying amount and the present value of future principal and interest repayments as well as expected recoveries.

$(cc)$ Contributed equity

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.

$(dd)$ Significant accounting judgements, estimates and assumptions

Significant accounting judgements

In the process of applying the group's accounting policies, management has made judgements, apart from those involving estimations, which have had an impact on the amounts recognized in the financial statements. No judgements have been determined to be individually significant.

Significant accounting estimates and assumptions

The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next reporting period are:

Impairment of goodwill

The Company determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. The assumptions used in this estimation of recoverable amount and the carrying amount of goodwill are discussed in note 14.

Share-based payment transactions

The Company measures the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using either the Binomial valuation model, based on assumptions in note 15.

Provisions for loans and advances

The Company provides for impaired loans where there is a reasonable doubt whether the principal amount of the loan can be collected in accordance with the terms of the loan agreement.

The Company provides for loans and advances based on anticipated losses on loans that are known to be impaired (specifically impaired assets), and also based on prior historical loss evidence and other factors on a group basis (collectively impaired assets).

Deferred expenses

Mortgage origination costs relating to managed loans that are directly attributable to establishing specific loans, other than those funded by a Residential Mortgage Trust, and which would not have been incurred had these contracts not been entered into, are deferred. They are amortised at a rate of 2.335% per month on a reducing balance basis. This rate is equal to the long-term average monthly runoff rate applicable to the underlying loan book upon which the management income is earned.

Note 3: SEGMENT INFORMATION

The Consolidated entity's primary segment reporting format is business segments as the Consolidated entity's risks and rates of return are affected predominantly by differences in the products and services produced.

The operating businesses are organised and managed separately according to the nature of the products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets.

Business segments

The following tables present revenue and profit information and certain asset and liability information regarding business segments for the years ended 30 June 2006 and 30 June 2005. The Consolidated Entity has two identifiable business segments:

Origination and management; and

Securitisation of mortgages

The origination and management segment originates residential mortgages through external mortgage brokers, satellite offices and internal consultants. The funding for these mortgages is supplied by a pool of funders, and then the origination and management segment continues the ongoing management of that loan after it is processed and settled.

The securitisation of mortgages segment is the Consolidated Entity's own funding source. Using a series of mortgage trusts, this segment packages groups of mortgages and sells the income stream via a securitised mortgage trust.

Year ended 30 June 2006	OriginationandManagement$'000	Securitisationof Mortgages$'000	Total$'000
Revenue
Interest Income	112	45,434	45,546
Fee and commission income	34,924	5,976	40,900
Other operating income	1,973	170	2,143
Total segment revenue	37,009	51,580	88,589
Non-segment revenue			936
Inter-segment elimination			(13,028)
Total consolidated revenue			76,497
Result
Segment results	7,155	342	7,497
Unallocated expenses			(2,810)
Profit / (loss) before tax andfinance costs
Finance costs			4,687
			(1,060)
Profit / (loss) before income taxand minority interest			3,627
Income tax expense			(1,030)
Net profit for the year			2,597
Assets and liabilities
Segment assets	50,360	710,920	761,280
Total assets			761,280
Segment liabilities	8,401	703,360	711,761
Unallocated liabilities			17,319
Total liabilities			729,080
Other segment information
Capital expenditure	199		199
Depreciation	457		457
Other non-cash expenses:	595	310	905
Cash flow information
Net cash flow from operating
activities	3,538	5,442	8,980
Net cash flow from investing
activities	(418)	(189, 653)	(190, 071)
Net cash flow from financing
activities	(1,808)	191,527	189,719

Year ended 30 June 2005	OriginationandManagement$'000	Securitisationof Mortgages$'000	Total$'000
Revenue
Interest Income	108	38,473	38,581
Fee and commission income	34,805	3,378	38,183
Other operating income	1,722		1,722
Total segment revenue	36,635	41,851	78,486
Inter-segment eliminations			(6, 759)
Total consolidated revenue			71,727
Result
Segment results	4,700	1,731	6,431
Unallocated expenses			(2,064)
Profit / (loss) before tax andFinance costs			4,367
Finance costs			(679)
Share of profit of associate
Profit / (loss) before income tax
and minority interest			3,688
Income tax expense			(1, 196)
Net profit for the year			2,492
Assets and liabilities
Segment assets	48,179	515,798	563,977
Total assets			563,977
Segment liabilities	7,121	510,539	517,660
Unallocated liabilities			10,192
Total liabilities			527,852
Other segment information
Capital expenditure	168		168
Depreciation	562		562
Other non-cash expenses:	1,386	303	1,689
Cash flow information
Net cash flow from operatingactivities	4,174	(2, 132)	2,042
Net cash flow from investingactivities	3,593	61,402	64,995
Net cash flow from financingactivities	(2,750)	(75, 700)	(78, 450)

Geographical Segments

The Consolidated entity's business segments are located in Australia.

REVENUES AND EXPENSES Note 4:

		CONSOLIDATED		HOMELOANSLIMITED
		2006$'000	2005$'000	2006$'000	2005$'000
	REVENUE
	(a) Interest income
	Interest received - other person/corporations	45,806	38,580	162	69
	(b) Fee and commission income
	Mortgage origination income	12,654	16,276	17,574	16,320
	Loan management fees	16,756	16,516	12,389	12,200
	(c) Other operating income
	Rental income	101	66	101	66
	Management Fees - Wholly owned controlledentities			4,563	5,917
	Telemarketing	79	201	79	201
	Insurance commission	87	85	87	85
	Stamp duty refund	846		846
	Other	168	3	158	(28)
		76,497	71,727	35,959	34,830
	EXPENSES
	(d) Interest expense
	Interest on bank loan	464	678	166	456
	Interest on reset preference shares	504		504
	Interest payable to bondholders	16,632	22,736
	Interest payable to warehouse facility provider	19,224	9,429
		36,824	32,843	670	456
	(e) Fee and commission expense
	Mortgage origination expense	10,886	7,570	10,469	8,151
	Loan management expense	8,243	7,630	5,184	5,358
		19,129	15,200	15,653	13,509
(f)	General administrative expenses
(i)	Depreciation consists of:
	Depreciation and amortisation of:
	Plant and equipment	39	38	39	38
	Plant and equipment under lease	418	524	418	524
		457	562	457	562
	(ii) Employee benefits consists of:
	Wages & salaries	8,080	9,115	8,080	9,115
	Workers' compensation costs	49	52	49	52
	Annual leave provision	$\overline{2}$	(42)	2	(42)
	Long service leave provision	94	(16)	94	(16)
	Share-based payments expense	265	96	265	96
	Other employee costs	1,853	2,426	1,843	2,426
		10,343	11,631	10,343	11,631

Note 5: INCOME TAX

	CONSOLIDATED		HOMELOANSLIMITED
	2006$'000	2005$'000	2006$'000	2005$'000
The major components of income tax expenseare:
Income Statement
Current income tax
Current income tax charge			635	679
Adjustments in respect of current income tax			70
of previous years
Deferred income tax
Relating to origination and reversal of temporary
differences	1,030	1,196	447	60
Income tax expenses reported in the
income statement	1,030	1,196	1,152	739
A reconciliation between tax expense and theproduct of accounting profit before income taxmultiplied by the Consolidated entity's applicableincome tax rate is as follows:
Accounting profit before income tax	3,627	3,688	3,435	2,081
At the Consolidated entity's statutory income taxrate of 30% (2005: 30%)	1,088	1,106	1,030	624
Reset preference share interest	151		151
Stamp duty settlement	(258)		(258)
Entertainment expenses	32	35	32	35
Share option expense	79	29	79	29
Other	(62)	26	118	51
Income tax expense reported in the consolidatedincome statement	1,030	1,196	1,152	739

	Balance Sheet			Income Statement
	2006$'000	2005$'000	2006$'000	2005$'000
Deferred tax income
Deferred income tax at 30 June related to thefollowing:
CONSOLIDATED
Deferred tax liabilities
Deferred expenses	(5,854)	(6, 645)	(791)	454
Effective interest adjustments - Deferredselling expenses	(1,673)	(1,002)	671	24
Derivative instrument	(14)		21
Prepayments	(59)	(79)	(20)	(56)
Leased assets	(375)	(500)	(125)	(214)
Accrued income	(1, 377)	(882)	495	(71)
Application of AASB 132 and AASB 139	(799)		664
Deferred income tax liabilities	(10, 151)	(9, 108)

Deferred tax assetsLosses available for offset against futuretaxable income	3,022	3,145	123	766
Accrued expenses	223	104	(119)	44
Effective interest adjustments - Deferredapplication fee margins	223	142	(81)	(7)
Lease incentives	168	199	31	(21)
Finance leases	318	463	145	180
Provisions	204	172	(32)	50
Capital items	49	95	48	47
Deferred income tax assets	4,207	4,320
Net deferred income tax liabilities	(5,944)	(4,788)
Deferred tax expense			1,030	1,196

	Balance Sheet			Income Statement
	2006$'000	2005$'000	2006$'000	2005$'000
PARENT
Deferred tax liabilities
Deferred expenses	(5,854)	(5, 840)	14	121
Prepayments	(56)	(74)	(17)	(49)
Leased assets	(375)	(500)	(125)	(214)
Accrued income	(1, 377)	(882)	495	(69)
Deferred income tax liabilities	(7,662)	(7, 296)
Deferred tax assets
Losses available for offset against futureprofits	3,022	3,145
Accrued expenses	209	104	(105)	44
Lease incentives	168	199	31	(21)
Provisions	204	172	(32)	50
Capital items	51	95	44	18
Finance leases	318	463	142	180
Deferred income tax assets	3,972	4,178
Net deferred income tax liabilities	(3,690)	(3, 118)
Deferred tax expense			447	60

Tax consolidation

Effective 1 July 2003, for the purposes of income taxation, Homeloans Limited and its 100% owned subsidiaries formed a tax consolidated group. The members of the group have entered into a tax sharing and funding arrangement in order to allocate income tax liability to the wholly-owned subsidiaries on a pro-rata basis. In addition the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. The head entity of the tax consolidated group is Homeloans Limited.

Homeloans Limited formally notified the Australian Tax Office of its adoption of the tax consolidation regime when it lodged its 30 June 2004 consolidated tax return.

Tax effect accounting by members of the tax consolidated group

Members of the tax consolidated group have entered into a tax sharing and funding agreement. The tax sharing and funding agreement provides for the allocation of the current income tax liability to members of the tax consolidated group based on a group allocation approach.

The allocation of taxes under the tax sharing and funding agreement is recognised as an increase/decrease in the subsidiaries' inter-company accounts with the tax consolidated entity's head company, Homeloans Limited.

Note 6: EARNINGS PER SHARE

Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent (after deducting interest on the convertible redeemable preference shares) by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent (after deducting interest on the convertible redeemable preference shares) by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

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

	CONSOLIDATED
	2006	2005
	$'000	$'000
Net profit attributable to ordinary equity holders of the parent	2,597	2,492
Reset preference share dividend		(504)
Net profit used in calculating basic earnings per share	2,597	1,988
Add back: reset preference share dividend		504
Net profit attributable to ordinary equity holders used in thecalculation of diluted EPS	2,597	2,492

Weighted average number of ordinary shares (excludingreserved shares) for basic earnings per share	50,354	50,354
Effect of dilution:Share options	155
Reset preference shares	13,886	16,976
Weighted average number of ordinary shares adjusted for theeffect of dilution	64,395	67,330
Weighted average number of converted, lapsed or cancelledpotential ordinary shares included in diluted earnings pershare	6

There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements.

Note 7: DIVIDENDS PAID AND PROPOSED

	CONSOLIDATED		HOMELOANSLIMITED
	2006$'000	2005$'000	2006$'000	2005$'000
Declared and paid during the year:Unfranked dividends:
Final dividend on ordinary shares for $2005 - 1.5$cents per share $(2004 - \text{nil})$	755		755
Interim dividend on ordinary shares for 2006 - 2.5cents per share (2005: Nil cents)	1,259		1,259
Reset preference shares for 2006 - 100 cents pershare (2005: 100 cents)*		504		504
	2,014	504	2,014	504
Proposed for approval at AGM (not recognisedas a liability as at 30 June):Dividends on ordinary shares:
Final unfranked dividend for 2006 - 2.5cents (2005: 1.5 cents)	1.259	755	1.259	755

* As of 1 July 2005 Reset Preference Shares are now treated as a liability under the application of AASB 132 Financial Instruments: Disclosure and Presentation. The Company has adopted the AASB 1 First Time adoption of AIFRS option of applying AASB 132 and AASB 139 Financial Instruments: Recognition and Measurement from 1 July 2005. Correspondingly, the dividends paid on the Reset Preference Shares are now treated as an interest expense.

Franking credit balance available at 30 June 2006 was $109,000 (2005 - $21,000).

Note 8: CASH ASSETS

	CONSOLIDATED		HOMELOANSLIMITED
	2006$'000	2005$'000	2006$'000	2005$'000
Reconciliation to Cash Flow Statement
For the purposes of the Cash Flow Statement,cash and cash equivalents comprise the followingat 30 June:
Cash at banks and in hand	25,505	16,392	300	269
Short-term deposits	69	554	$\blacksquare$	500
	25,574	16,946	300	769

Cash at bank earns interest at floating rates based on daily bank deposit rates.

Short-term deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of the Consolidated entity, and earn interest at the respective short-term deposit rates.

The fair value of cash and cash equivalents is $25,574,000 (2005: $16,946,000).

	CONSOLIDATED		HOMELOANSLIMITED
	2006$'000	2005$'000	2006$'000	2005$'000
Reconciliation of net profit after tax to netcash flows from operations
Net profit	2,597	2,492	2,283	1,342
Adjustments for:
Depreciation	457	562	457	562
Asset write off		537		537
Amortisation of bond distribution costs	310	303
Amortisation of Eurofinance	249	949	249	949
Amortisation of prepaid royalties &commissions	81	342	81	326
Amortisation of reset preference share issuecost	92		92
Stamp duty refund	(861)		(861)
Net (profit)/loss on disposal of plant andequipment		35		33
Share options expensed	265	96	265	96
Changes in assets and liabilities:
(Increase)/decrease in receivables	(1,502)	(2,612)	(2,605)	(1, 385)
(Increase)/decrease in deferred expenses	2,636	(1, 515)	381	(828)
(Decrease)/increase in deferred tax liabilities	1,156	1,188	571	1,196
(Decrease)/increase in current tax liability	(12)	$(12)$ -	(12)	(12)
(Increase)/decrease in trade and otherpayables	3,508	(311)	1,775	1,099
(Decrease)/increase in non-interest bearingliabilities	(104)	56	(104)	56
(Decrease)/increase in provisions	108	(68)	108	(68)
Net cash from operating activities	8,980	2,042	2,680	3,903

Disclosure of financing facilities Refer to note 17.

Disclosure of non-cash financing andinvesting activities

Refer to note 13 and note 22.

Note 9: RECEIVABLES

	CONSOLIDATED		HOMELOANSLIMITED
	2006$'000	2005$'000	2006$'000	2005$'000
Fees receivables
Non-related parties (i)	10,035	8,063	6,787	4,816
Related parties - wholly owned controlledentity (ii)	$\overline{a}$		4,031	2,679
Associate	11
	10,046	8,063	10,818	7,495
Prepaid royalties and trailing commissions (iii)	145	214	134	192
Loan book receivable (Eurofinance)		249	$\blacksquare$	249
Prepayments and other (iv)	1,461	1,548	228	639
	11,652	10,074	11,180	8,575

Terms and conditions relating to the above financial instruments

Fees receivable are non-interest-bearing and on settlement terms of between 4 to 60 days $(i)$
Details of the terms and conditions of related party receivables are set out in Note 26. $(ii)$
Prepaid royalties and trailing commissions represent the buyout of royalty and trailer commitments. $(iii)$ These are amortised over the average loan life of 50 months (See Note 11).
Prepayments and other are non-interest-bearing and include GST refunds due in the ordinary $(iv)$ course of business within 30 days and various retrospective GST claims receivable within 6 months

Note 10: LOANS AND ADVANCES TO CUSTOMERS

	CONSOLIDATED		HOMELOANSLIMITED
	2006$'000	2005$'000	2006$'000	2005$'000
Loans and advances to customers	686,855	496,855
Maturity Analysis
Loans will be repaid under current repaymentarrangements over the following periods:Up to 3 months	335		$\blacksquare$
From 3 months to 1 year	171
From 1 year to 5 years	14,205	14.979	$\blacksquare$
From 5 years and over	672,144	481,876

Loans and advances to customers represents lending for residential mortgages at either fixed or floating rates. At 30 June 2006 the weighted average interest rate on these loans was 7.35% (2005: 7.27%). Refer Financial Risk Management - Note 24.

Note 11: DEFERRED EXPENSES

	CONSOLIDATED			HOMELOANSLIMITED
	2006$'000	2005$'000	2006$'000	2005$'000
Deferred expenses	19,514	22,149	19.514	19,895

Note 12: OTHER FINANCIAL ASSETS

	CONSOLIDATED		HOMELOANSLIMITED
	2006$'000	2005$'000	2006$'000	2005$'000
Loan to associate	17	$_{\rm m}$	17
Investments in controlled entities (Note 26)	$\blacksquare$	$\tilde{\phantom{a}}$	19,178	19,178
	17	$\tilde{\phantom{a}}$	19,195	19,178

Note 13: PLANT AND EQUIPMENT

	CONSOLIDATED	HOMELOANSLIMITED
	Plant and equipment	Plant and equipment
	$'000	$'000
Year ended 30 June 2006
At 1 July 2005, net of accumulated depreciationand impairment	1,957	1,957
Additions	172	172
Depreciation charge for the year	(457)	(457)
At 30 June 2006, net of accumulated depreciationand impairment	1,672	1,672
At 30 June 2006
Cost or fair value	5,212	5,212
Accumulated depreciation and impairment	(3,540)	(3,540)
Net carrying amount	1,672	1,672
Year ended 30 June 2005
At 1 July 2004, net of accumulated depreciationand impairment	2,809	2,809
Additions	288	288
Disposals	(41)	(41)
Write-off*	(537)	(537)
Depreciation charge for the year	(562)	(562)
At 30 June 2005,
net of accumulated depreciation and impairment	1,957	1,957
At 30 June 2005
Cost or fair value	5,044	5,044
Accumulated depreciation and impairment	(3,087)	(3,087)
Net carrying amount	1,957	1,957

The useful life of the assets was estimated as follows both for 2005 and 2006:

Plant and equipment

5 to 15 years

All balances of Plant & Equipment have been granted first mortgages as security over bank loans. The terms of the first mortgages preclude the assets being sold or being used as security for further mortgages without the permission of the first mortgage holder. The first mortgage holder also requires all assets to be fully insured at all times.

The carrying value of plant and equipment held under finance leases at 30 June 2006 is $1,249,000 (2005: $1,668,000). Additions during the year include $Nil (2005: $70,000) of plant and equipment held under finance leases. Leased assets are pledged as security for the related finance lease.

* The $537,000 represents the write-off of certain plant and equipment as a result of the closure and relocation of various Homeloans offices during the financial year.

Note 14: GOODWILL

	CONSOLIDATED	HOMELOANSLIMITED
	$'000	$'000
Year ended 30 June 2006
At 1 July 2005, net of impairment	15,996
Less: Impairment
At 30 June 2006, net of impairment	15,996	$\blacksquare$
At 30 June 2006
Cost (gross carrying amount)	15,996
Less: Impairment
Net carrying amount	15,996

Year ended 30 June 2005
At 1 July 2004, net of impairment	15,996
Less: Impairment
At 30 June 2005, net of impairment	15,996
At 30 June 2005
Cost (gross carrying amount)	15,996
Less: Impairment
Net carrying amount	15,996

Goodwill acquired through business combinations have been allocated to two individual cash generating units, which are reportable segments, for impairment testing as follows:

Origination and Management
Securitisation of Mortgages $\blacksquare$

Origination and Management

The recoverable amount of the Origination and Management cash generating unit has been determined based on a value in use calculation using cash flow projections covering a 3 year period, which are then extrapolated for 32 years at a constant growth rate of 3% per annum.

The pre tax discount rate applied to cash flow projections is 15.2%. (2005: 15.2%).

Securitisation of Mortgages

The recoverable amount of the Securitisation of Mortgages cash generating unit is determined based on a value in use calculation using cash flow projections covering a 3 year period, which are then extrapolated for 32 years at a constant growth rate of 3% per annum.

The pre tax discount rate applied to cash flow projections is 15.2%.(2005: 15.2%).

Carrying amount of goodwill allocated to each of the cash generating units

	Origination andManagement		CONSOLIDATEDSecuritisation ofMortgages		Total
	2006$'000	2005$'000	2006$'000	2005$'000	2006$'000	2005$'000
Carrying amount of goodwill	10,467	10.467	5.529	5,529	15,996	15,996

Key assumptions used in the value in use calculation for the Origination and Management CGU and the Securitisation of Mortgages CGU for 30 June 2006 and 30 June 2005

The following describes each key assumption on which management has based its cash flow projections when determining the value in use of the Origination and Management CGU and the Securitisation of Mortgages CGU:

Inflation constant 3.5% per annum
Taxation Cashflows are gross of tax and any deferred tax asset or liability has been excluded from the net assets used in valuing the goodwill. Tax losses are currently available to the Consolidated group.
Volumes Management have allowed for a continuation of the current growth patterns in our market as follows:

	2007	2008	2009	Post 2009
Origination and Management
- Formalled Ioans	16%	8%	5%	3%
- Funds under management	8%	10%	10.6%	8%
Securitisation of Mortgages
- Volume of formalled loans	31%	31%	31%	31%
through RMT
- RMT funds under	37%	27%	22%	15%
management

RMT trusts pay to the Origination and Management CGU both an origination and $\blacksquare$ management fee based on external funders rates.
Interest margin earned of 0.9% within RMT
Maintenance of existing commission rates earned and paid

Note 15: SHARE-BASED PAYMENT PLANS

Employee Share Option Plan

An employee option plan exists where eligible employees of the consolidated entity, as determined by the directors, are issued with options over the ordinary shares of Homeloans Limited. The options, issued for nil consideration, are issued in accordance with the guidelines established by the directors of Homeloans Limited. The options issued carry various terms and exercising conditions. There are currently 22 members of this plan of whom 18 are current employees or directors.

Information with respect to the number of options granted under the employee option scheme, options issued to the non-executive directors of the Company and options issued to the Company's Chief Operating Officer and Finance Director are as follows:

	2006		2005
	Number ofoptions	Weightedaverageexerciseprice$	Number ofoptions	WeightedaverageexercisepriceS
Outstanding at the beginning of the year	8,130,000	0.66	3,720,000	1.03
Granted during the year	2,905,000	0.42	5,175,000	0.43
Forfeited during the year	(3, 155, 000)	0.89	(315,000)	0.80
Exercised during the year		$\overline{\phantom{a}}$
Outstanding at the end of the year	7,880,000	0.48	8,130,000	0.66

Exercisable at the end of the year	3,025,000	0.57	4,580,000	0.82

Options held at the beginning of the reporting period:

The following table summarises information about options held by employees as at 1 July 2005:

Number ofoptions	Grant date	Vesting date	Expiry date	Weightedaverageexerciseprice$	Weightedaverageshareprice ^^$
400,000	9 March 2001	19 March 2002	9 March 2006	1.00	0.99
400,000	9 March 2001	19 March 2003	9 March 2006	1.15	0.99
400,000	9 March 2001	19 March 2004	9 March 2006	1.30	0.99
227,500	27 March 2001	27 March 2003	27 March 2006	1.01	1.05
227,500	27 March 2001	27 March 2004	27 March 2006	1.01	1.05
100,000	29 April 2002	1 April 2004	1 April 2007	0.99	0.94
100,000	29 April 2002	1 April 2005	1 April 2007	0.99	0.94
250,000	2 May 2002	27 March 2003	27 March 2006	1.01	0.90
250,000	2 May 2002	27 March 2004	27 March 2006	1.01	0.90
250,000	2 May 2002	1 April 2004	1 April 2007	0.99	0.90
250,000	2 May 2002	1 April 2005	1 April 2007	0.99	0.90
100,000	1 April 2003	21 January 2005	21 January 2008	0.52	0.50
100,000	1 April 2003	21 January 2006	21 January 2008	0.52	0.50
375,000	1 December 2004	1 December 2004	1 December 2009	0.40	0.34
500,000	1 December 2004	1 June 2005	1 December 2009	0.45	0.34
500,000	1 December 2004	1 June 2006	1 December 2009	0.50	0.34
750,000	7 December 2004	7 December 2004	7 December 2009	0.40	0.35
1,000,000	7 December 2004	31 March 2006#	7 December 2009	0.45	0.35
1,000,000	7 December 2004	31 March 2007#	7 December 2009	0.50	0.35
475,000	14 January 2005	14 December 2006	14 December 2009	0.35	0.38
475,000	14 January 2005	14 December 2007	14 December 2009	0.53	0.38
8,130,000				0.66	0.57

#Performance hurdles are involved in the conditions for vesting of these options(see note 29)

^^ Average share price on the date of grant.

Options granted:

The following table summarises information about options granted by Homeloans Limited during the year:

Favouree	Grant Date	NumberGranted	Vesting date	Expiry date	Weightedaverageexerciseprice
					$
Director	14 October 2005	100,000	31 August 2006	31 August 2009	0.36
	14 October 2005	150,000	31 August 2007	31 August 2010	0.46
	23 November 2005	315,000	31 August 2006	31 August 2009	0.36
	23 November 2005	310,000	31 August 2007	31 August 2010	0.46
	20 February 2006	200,000	31 August 2006	31 August 2009	0.36
	20 February 2006	300,000	31 August 2007	31 August 2010	0.46
Mortgage Asset	7 April 2006 (A)	250,000	30 September 2006	7 December 2009	0.36
Services Pty	7 April 2006 (B)	250,000	31 March 2007	7 December 2009	0.46
Ltd	7 April 2006 (c)	250,000	31 December 2006	7 December 2009	0.51
Staff	14 October 2005	312,000	31 August 2006	31 August 2009	0.36
	14 October 2005	468,000	31 August 2007	31 August 2010	0.46
		2,905,000

(A) - only exercisable if average mortgage settlements in any three (3) month period prior to 30 September 2006 exceeds $100 million per month.

(B) only exercisable if average mortgage settlements in any three (3) month period prior to 31 March 2007 exceeds $112.5 million per month.
(C) only exercisable if average mortgage settlements in any three (3) month period prior to 31 December 2007 exceeds $137.5 million per month.

Fair values of options:

The fair value of each option is estimated on the date of grant using a Binomial option-pricing model with the following weighted average assumptions used for grants made:

Grant Date	14 Oct 05	14 Oct 05	23 Nov 05	23 Nov 05	20 Feb 06
Dividend yield	3.0%	$3.0%$	3.0%	$3.0%$	$3.0%$
Expected volatility	45%	45%	45%	45%	45%
Risk-free interest rate	5.266%	5.276%	5.143%	5.157%	5.052%
Expected life of option	3.9 years	4.9 years	3.8 years	4.8 years	3.5 years
Grant Date	20 Feb 06	7 Apr 06	7 Apr 06	7 Apr 06
Dividend yield	3.0%	$3.0%$	$3.0%$	$3.0%$
Expected volatility	45%	45%	45%	45%
Risk-free interest rate	5.048%	5.423%	5.337%	5.337%
Expected life of option	4.5 years	3.7 years	3.7 years	3.7 years

Options exercised:

No options were exercised by employees during the year ended 30 June 2006, or during the previous year ended 30 June 2005.

Options held as at the end of the year:

The following table summarise information about options held by employees as at 30 June 2006:

Number ofoptions	Grant date	Vesting dateExpiry date		Weightedaverageexerciseprice	Weightedaverageshareprice 44
				$	$
100,000	29 April 2002	1 April 2004	1 April 2007	0.99	0.94
100,000	29 April 2002	1 April 2005	1 April 2007	0.99	0.94
250,000	2 May 2002	1 April 2004	1 April 2007	0.99	0.90
250,000	2 May 2002	1 April 2005	1 April 2007	0.99	0.90
100,000	1 April 2003	21 January 2005	21 January 2008	0.52	0.50
100,000	1 April 2003	21 January 2006	January 200821	0.52	0.50
375,000	1 December 2004	1 December 2004	1 December 2009	0.40	0.34
500,000	1 December 2004	1 June 2005	1 December 2009	0.45	0.34
500,000	1 December 2004	1 June 2006	1 December 2009	0.50	0.34
750,000	7 December 2004	7 December 2004	7 December 2009	0.40	0.35
1,000,000	7 December 2004	7 December 2004 (b)	7 December 2009	0.50	0.35
475,000	14 January 2005	14 December 2006	14 December 2009	0.35	0.38
475,000	14 January 2005	14 December 2007	14 December 2009	0.35	0.38
412,000	14 October 2005	31 August 2006	31 August 2009	0.36	0.45
618,000	14 October 2005	31 August 2007	31 August 2010	0.46	0.45
315,000	23 November 2005	31 August 2006	31 August 2009	0.36	0.40
310,000	23 November 2005	31 August 2007	31 August 2010	0.46	0.40
200,000	20 February 2006	31 August 2006	31 August 2009	0.36	0.42
300,000	20 February 2006	31 August 2007	31 August 2010	0.46	0.42
250,000	7 April 2006	30 September 2006 (A)	7 December 2009	0.36	0.40
250,000	7 April 2006	31 March 2007 (B)	7 December 2009	0.46	0.40
250,000	7 April 2006	31 December 2007 (c)	7 December 2009	0.51	0.40
7,880,000				0.48	0.43

(A) - only exercisable if average mortgage settlements in any three (3) month period prior to 30 September 2006 exceeds $100 million per month.

(B) - only exercisable if average mortgage settlements in any three (3) month period prior to 31 March 2007 exceeds $112.5 million per month.

(C) - only exercisable if average mortgage settlements in any three (3) month period prior to 31 December 2007 exceeds $137.5 million per month.

(D) - Only exercisable if average Mortgage settlements in any three (3) month period prior to 31 March 2007 exceeds $225 million per month

^^ Weighted average share price on the date of grant.

Superannuation Commitments

Employees and the employer contribute to a number of complying accumulation funds at varying percentages of salaries and wages. The consolidated entity's contributions of up to 9% of employees' wages and salaries are not legally enforceable other than those payable in terms of ratified award obligations required by the Occupational Superannuation Act.

PAYABLES Note 16:

	CONSOLIDATED		HOMELOANSLIMITED
	2006$'000	2005$'000	2006$'000	2005$'000
Trade payables (i)	520	515	520	515
Payable to related parties:
Wholly-owned Consolidated entity
- controlled entity			7,474	5.151
Accrued commissions (ii)	2,262	1,550	2,231	1,510
Sundry creditors and accruals (iii)	3,607	2,231	1,291	1,549
Cash flow claim creditors (iv)	205	195	205	195
Current income tax payable	$\mathbf{r}$	12		12
Interest payable $(v)$	2,789	1,542	$\blacksquare$	$\blacksquare$
	9,383	6,045	11,721	8,932

Terms and conditions relating to the above financial instruments:

$(i)$ Trade payables are non-interest bearing and are normally settled on 30 day terms.

Accrued commissions are non-interest bearing and are payable between 30 and 90 days. $(ii)$

Sundry creditors and accruals are non-interest bearing are normally settled on 30 day terms. $(iii)$

Cash flow claim creditors are non-interest bearing are normally settled on 30 day terms. $(iv)$

Interest payable is non-interest bearing and is payable within 30 days. $(V)$

Note 17: INTEREST-BEARING LIABILITIES

		CONSOLIDATED		HOMELOANSLIMITED
		2006	2005	2006	2005
	Maturity	$'000	$'000	$'000	$'000
Bank loans
Secured bank loans (ii)	31/12/2007	1,000	2,975	1,000	2,975
Net interest margin (iii)	12/12/2007	5,377	2,418	$\blacksquare$
Warehouse facility (iv)	20/12/2006	60,531	214,508	$\blacksquare$
Non-bank loans
Obligations under finance leasesand hire purchase contracts (v)	$2007 - 2009$	1.162	1.716	1,162	1,716
Bonds (vi)	$2028 - 2038$	635,915	294,164	$\blacksquare$
Other (vii)	On demand	3,529
		707,514	515,781	2,162	4,691

Terms and conditions relating to the above financial instruments:

The Company has a bank overdraft which is not utilised at year end. The bank overdraft is $(i)$ repayable on demand. Interest is charged at the bank's floating rate. The overdraft is secured by way of registered first mortgages over all assets and undertakings of the Company and its controlled entities

Secured bank loans incur interest at the bank bill rate plus a margin. The bank loans are secured $(ii)$ by way of registered first mortgages over all assets and undertakings of the Company and its controlled entities. Interest is recognised at an average rate of 6.7% (2005: 6.6%).
$(ii)$ The Net interest margin facility incurs interest at the bank bill rate plus a margin. The facility is secured by specified cash flows from the assets of the Residential Mortgage Trusts and is guaranteed by the Company. Interest is recognised at an average rate 7.7% (2005: 7.4%).
$(iii)$ The Warehouse Facility incurs interest at the bank bill rate plus a margin. The facility is secured by the assets of the warehouse trust. Interest is recognised at an average rate 6.15% (2005: 5.99%).
Finance leases and hire purchases have an average lease term of 4.8 years with the option to $(vii)$ purchase the asset at the completion of the lease term for the asset's market value. The average discount rate implicit in the leases is 8.74% (2005: 8.14%). The lease liability is secured by a charge over the leased assets.
$(vi)$ Residential Mortgage Backed Securities with a legal final maturity of 32 years from issue, and an expected maturity of at least 5 years. Interest is recognised at an average rate 6.09% (2005: $6.09%$ ).
(vii) Other loans represents short term funding provided by the sub-servicer appointed to administer the Residential Mortgage Trusts. This funding is usually for 24 hours only and is repaid from RMT bank accounts the following day. Interest is recognised at an average rate 5.25% (2005: 5.25%).

Fair value disclosures

Details of the fair value of the Consolidated entity's interest bearing liabilities are set out in note 24.

Financing facilities available

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

	CONSOLIDATED
200620052006	$'000$'000		2005
		$'000	$'000

900	900	900	900
9,800	11,100	3,800	5,100
500,000	350,000	$\blacksquare$	$\overline{\phantom{m}}$
510,700	362,000	4,700	6,000
			HOMELOANSLIMITED

	CONSOLIDATED		HOMELOANSLIMITED
	2006	2005	2006	2005
	$'000	$'000	$'000	$'000
Facilities used at reporting date
- bank overdraft
- cash advance	6,377	5,392	1,000	2,975
- RMT warehouse facility	60,531	214,508
	66,908	219,900	1,000	2,975
Facilities unused at reporting date
- bank overdraft	900	900	900	900
- cash advance	3,423	5,708	2,800	2,125
- RMT warehouse facility	439,469	135,492	$\blacksquare$	÷
	443,792	142,100	3,700	3,025

Total facilities	510,700	362,000	4.700	6,000
Facilities used at reporting date	66,908	219,900	1,000	2,975
Facilities unused at reporting date	443,792	142,100	3,700	3,025

Assets pledged as security

The carrying amounts of assets pledged as security for current and non-current interest bearing liabilities are:

	CONSOLIDATED		HOMELOANSLIMITED
	2006	2005	2006	2005
	$'000	$'000	$'000	$'000
ASSETS
First mortgage
Finance lease	1,249	1,668	1,249	1,668
Plant and equipment	423	289	423	289
Loans and advances to customers	686,855	496,855		$\overline{a}$
Floating charge
Cash assets	25,574	16,946	300	769
Receivables	11,652	10,074	11,180	8,575
Total assets pledged as security	725,753	525,832	13,152	11,301

Note 18: RESET PREFERENCE SHARES

	CONSOLIDATED		HOMELOANSLIMITED
	2006$'000	2005$'000	2006$'000	2005$'000
Reset preference shares	4,998	$\overline{\phantom{a}}$	4,998	$\blacksquare$

At 30 June 2006, there are 503.528 reset preference shares on issue. Each share has a nominal value of $10.00 and may be convertible at the option of the Company or the shareholder into ordinary shares on 30 November 2006 on the basis of a minimum of 20 ordinary shares and a maximum of 50 ordinary shares for each reset preference share. The final conversion factor will depend on the average share price over the last 20 trading days prior to the reset date.

Reset preference shares carry a cumulative entitlement to an unfranked dividend of 10% per annum payable half yearly (31 May and 30 November) in arrears until conversion to ordinary shares or into cash.

The first reset date is 30 November 2006. Reset dates after the first reset date are expected to be every three years. If the dividend is franked to any extent, it will be reduced so that the after tax return to the holder is the same as it would have been if the dividend were unfranked.

Reset preference shares do not entitle their holder to a vote at a meeting of the company, except in certain circumstances.

As of 1 July 2005, Reset Preference Shares are now treated as a liability under the application of AASB 132 Financial Instruments: Disclosure and Presentation. The Company has adopted the AASB 1 First Time adoption of AIFRS option of applying AASB 132 and AASB 139 Financial Instruments: Recognition and Measurement from 1 July 2005. Correspondingly, the dividends paid on the Reset Preference Shares are now treated as an interest expense.

LEASE INCENTIVES Note 19:

	CONSOLIDATED		HOMELOANSLIMITED
	2006$'000	2005$'000	2006$'000	2005$'000
Lease incentives.	561	665	561	665

Terms and conditions relating to the lease incentive

Net rental incentives were received or are receivable in the form of an upfront cash incentive and $(i)$ rent-free periods by the consolidated entity for entering into a non-cancellable operating lease for premises occupied by the chief entity. This was entered into in September 2003 in respect of the Head Office of the chief entity.

The lease term for the Head office premises is 10 years. The value of these incentives has been deferred and amortised against occupancy costs over the lease term.

PROVISIONS Note 20:

	Long ServiceLeave	Annual Leave	Total
	$'000	$'000	$'000
CONSOLIDATED
At 1 July 2005	25	548	573
Arising during the year	96	11	107
At 30 June 2006	121	559	680
PARENT
At 1 July 2005	25	548	573
Arising during the year	96	11	107
At 30 June 2006	121	559	680

CONTRIBUTED EQUITY AND RESERVES Note 21:

	CONSOLIDATED		HOMELOANSLIMITED
	2006$'000	2005$'000	2006$'000	2005$'000
Ordinary shares issued and fully paid	48.624	48.624	48.624	48,624
Reset preference shares fully paid		4,771	$\blacksquare$	4,771
	48,624	53,395	48,624	53,395

Effective 1 July 1998, the Corporations legislation in place abolished the concepts of authorized capital and par value shares. Accordingly, the Parent does not have authorized capital nor par value in respect of its issued shares. Fully paid ordinary shares carry one vote per share and carry the right to dividends.

Terms and conditions of contributed equity

Ordinary shares

Ordinary shares have the right to receive dividends as declared and, in the event of the winding up of the company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held.

Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the company.

Reset preference shares

The first reset date is 30 November 2006. Reset dates after the first reset date is expected to be every three years. If the dividend is franked to any extent it will be reduced so that the after tax return to the holder is the same as it would have been if the dividend were unfranked.

Reset preference shares do not entitle their holder to a vote at a meeting of the company, except in certain circumstances.

	CONSOLIDATED		HOMELOANSLIMITED
	Thousands	$'000	Thousands	$'000
Movement in ordinary shares on issue
At 1 July 2004	50,354	48,624	50,354	48,624
Issued during the year
At 1 July 2005	50,354	48,624	50,354	48,624
Issued during the year
At 30 June 2006	50,354	48,624	50,354	48,624
Movement in reset preference shares on issue
At 1 July 2004	504	4,771	504	4,771
Issued during the year
At 30 June 2005	504	4,771	504	4,771
Reclassification as interest bearing liability 1 July	(504)	(4, 771)	(504)	(4, 771)
Issued during the year
At 30 June 2006

Refer to note 18 for the terms attaching to the reset preference shares.

Share options

There were 2,905,000 options (2005: 5,175,000) over ordinary shares granted during the financial year At the end of the year there were 7,880,000 (2005: 8,130,000) unissued ordinary shares in respect of which options were outstanding. For more information refer to note 15.

Accumulated losses

Movements in accumulated losses were as follows:

	CONSOLIDATED		HOMELOANSLIMITED
	2006	2005	2006	2005
	$'000	$'000	$'000	$'000
Balance 30 June	(17, 372)	(19, 360)	(21, 103)	(21, 941)
Application of AASB 132 and AASB 139
- reset preference shares now treated as aliability	(134)		(134)
- net loss on recognition of derivativeinstruments	(46)
- reset preference dividend paid during theperiod in respect of the prior year	(42)		(42)
- net gain on recognition of financial assets andliabilities associated with the present value offuture trailing commission income andexpenses	415
- tax effect of changes in respect of the aboveitems	(195)		68
Balance 1 July	17,374	(19,360)	(21, 211)	(21, 941)
Net profit for the year	2,597	2,492	2,283	1,342
Dividends	(2,014)	(504)	(2,014)	(504)
Balance 30 June	(16, 791)	(17, 372)	(20, 942)	(21, 103)

Employee Option Reserve

Movements in the employee option reserve were as follows:

	CONSOLIDATED		HOMELOANSLIMITED
	2006	20052006			2005
	$'000	$'000	$'000	$'000
Balance 1 July	102	6	102	6
Charge for the period	265	96	265	96
Balance 30 June	367	102	367	102

The employee option reserve recognises the fair value of options issued to employees and other related parties as remuneration and charges this to the income statement. It applies to all share-based payments issued after 7 November 2002, which have not vested as at 1 January 2005. The option value is calculated using a Binomial model and the value is charged to the Employee Option Reserve over the period in which the options are due to vest. The value allocated to each option issue is determined, among other things, by reference to likelihood of the recipient exercising the option, the share price at the date of grant, the volatility of the share price, and current risk free interest rates (see Note 15).

ACQUISITION OF CONTROLLED ENTITY Note 22:

On 16 September 2004, Homeloans Ltd acquired 100% of the voting share capital of Match Funds Management Limited, a public company incorporated in Australia, that holds an Australian Financial Services Licence to operate as a Responsible Entity. The components of the acquisition cost were:

	$000's
Consideration
- cash paid in the year ended 30 June 2004	28
- cash paid in the year ended 30 June 2005	315
	343
Net Assets acquired
- cash	53
- plant and equipment	4
- other financial assets	4
	61
- trade creditors	(2)
- fair value of net tangible assets acquired	60
- goodwill arising on acquisition	280
Carrying value of investment	340
- GST paid on acquisition costs	3
	343
Net cash effect
Cash consideration paid	315
Cash included in net assets acquired	(53)
Net cash paid for purchase of controlled entity	262

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 (CONTINUED)

Note 23: AVERAGE BALANCE SHEET AND INTEREST RATES

The following table sets out the major categories of interest earning assets and liabilities

	Consolidated2006		Consolidated2005
	AverageBalance$000's	Interest$000's	AverageRate%	AverageBalance$000's	Interest$000's	AverageRate%
Interest earning assets
Cash	12,242	591	4.83	18,919	858	4.53
Loan and advances	587,895	45,215	7.69	517,797	37,722	7.29
Total interest earningassets	600,137	45,806	7.63	536,716	38,580	7.19
Interest bearingliabilities
Bonds and warehousefacility	600,137	35,993	6.00	536,716	32,623	6.08
Cash advance and netinterest margin facilities	4,407	327	7.42	3,045	220	7.22
Reset preference shares	4,951	504	10.18
Total interest bearingliabilities	609,495	36,824	6.04	539,761	32,843	6.08
NET INTEREST MARGIN		8,982	1.59		5,737	1.11

Note 24: FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Consolidated entity has other financial assets and liabilities such as cash assets, trade receivables, payables and interest bearing liabilities, which arise directly from its operations. The Consolidated entity also enters into derivative transactions, including interest rate swaps. The purpose is to manage the interest rate arising from the Consolidated entity's operations and its sources of finance. The main risks arising from the Consolidated entity's financial instruments are interest rate risk and credit risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below.

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2 to the financial statements.

Interest rate risk

The consolidated entity's exposure to interest rate risks and the effective interest rates of financial assets and financial liabilities, both recognised and unrecognised at a floating interest rate.

Credit risk exposures

The consolidated entity's maximum exposure to credit risk at balance date in relation to each class of recognised financial assets is the carrying amount, net of any provision for doubtful debts, of those assets as indicated in the balance sheet.

Concentration of credit risk

The consolidated entity minimises concentrations of credit risk in relation to accounts receivable by undertaking transactions with a number of investment grade lending institutions within the APRA regulated banking industry. The consolidated entity is not materially exposed to any individual lender. Some agreements with lenders also contain provisions requiring the consolidated entity to pay instalments due from borrowers until securities are enforced or an insurance claim has been paid and to purchase the mortgage from the lender if Homeloans Limited is in default. The consolidated entity's risk in this area is mitigated by insurance policies.

Fair values

Set out below is a comparison by category of carrying amounts and fair values of all of the Consolidated entity's financial instruments recognised in the financial statements.

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

Recognised Financial Instruments

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

Receivables, payables, non-interest bearing liabilities and variable rate interest bearing liabilities: The carrying amount approximates fair value. In the case of Non-interest bearing liabilities, this is because they are short term in nature.

The fair value of interest rate swap contracts and fixed rate interest bearing liabilities is determined by reference to market value for similar instruments.

		Carrying Amount		Fair value
	2006	2005	2006	2005
	$'000	$'000	$'000	$'000
CONSOLIDATED
Financial assets
Cash	25,574	16,946	25,574	16,946
Receivables	10,046	8,063	10,046	8,063
Loans and advances to customers	686,855	496,855	686,809	496,878
Financial liabilities
On balance sheet
Interest-bearing liabilities
Leases and hire purchase	1,162	1,716	1,162	1,716
Secured bank loans	66,908	219,901	66,908	219,901
Reset preference shares	4,998		5,035
Bonds	635,915	294,164	635,915	294,064
Other	3,529		3,529
PARENT
Financial assets
Cash	300	769	300	769
Receivables	10,818	7,495	10,818	7,495
Financial liabilities
On balance sheet
Interest-bearing liabilities
Leases and hire purchase	1,162	1,716	1,162	1,716
Secured bank loans	1,000	2,975	1,000	2,975
Reset preference shares	4,998		5,035

Interest rate risk

The following table sets out the carrying amount, by maturity, of the financial instruments exposed to interest rate risk:

					Fixed Rate				Weightedaverageeffective
CONSOLIDATED	Floating$'000	<1 year$'000	>1-<2years$'000	>2 < 3years$'000	$>3 - 4$years$'000	>4-<5years$'000	5 years$'000	Total$'000	interestRate%
Year ended 30 June2006
FINANCIAL ASSETS
Cash assets	25,574						$\blacksquare$	25,574	4.83%
Receivables		158	100						8.60%-
Loans and advances tocustomers	674,597	321	982	4,765	583	5,607	$\blacksquare$	686,855	7.26%
Weighted averageeffective interest rate	7.17%	7.95%	7.35%	7.14%	6.86%	7.36%
FINANCIALLIABILITIES
Reset preferenceshares		4,998						4,998	10.0%
Leases and hirepurchase		337	357	468				1,162	8.74%
Interest bearingliabilities
Secured bank loans- Cash advancefacility	1,000							1,000	6.95%
- Net interest marginfacility	5,377							5,377	7.70%
- RMT Warehousefacility	60,531						$\blacksquare$	60,531	6.15%
- Bonds	635,915							635,915	6.09%
Other loan	3,529							3,529	5.25%
Interest rate swaps	(12, 258)	321	982	4,765	583	5,607
Weighted averageeffective interest rate	6.10%	9.92%	8.74%	8.74%	8.74%	8.74%

					Fixed Rate				Weightedaverageeffective
CONSOLIDATED	Floating$'000	<1 year$'000	$>1 - 2$years$'000	$>2 - 3$years$'000	$>3 - 4$years$'000	>4 < 5years$'000	5 years$'000	Total$'000	interestRate$%$
Year ended 30 June2005
FINANCIAL ASSETS
Cash assets	16,946							16,946	4.53%
Loans and advances tocustomers	479,972	4,398	3,913	2,407	4,285	1,880		$-496,855$	7.27%
Weighted averageeffective interest rate	7.19%	6.57%	7.18%	6.92%	7.28%	7.36%
FINANCIALLIABILITIES
Leases and hirepurchase		554	337	357	468			1,716	8.14%
Interest bearingliabilities
Secured bank loans- Cash advance	2,975							2,975	6.73%
facility- Net interest margin							$\tilde{}$
facility	2,418							2,418	7.40%
- RMT Warehousefacility	214,508							$-214,508$	5.99%
- Bonds	224,164	70,000						$-294,164$	6.14%
Interest rate swap-bonds		70,000 (70,000)
Interest rate swaps-loans	(16, 883)	4,398	3,913	2,407	4,285	1,880	$_{\rm sc}$	$_{\rm esc}$
Weighted averageeffective interest rate	6.09%	6.60%	8.14%	8.14%	8.14%	8.14%

									Weightedaverage
Parent	Floating	<1 year	$>1 - 2$years	$>2 - 3$years	Fixed Rate$>3 - 4$years	>4-<5years	5 years	Total	effectiveinterestRate
	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$%$
Year ended 30 June2006
FINANCIAL ASSETS
Cash assets	300							300	4.83%
Receivables	$\blacksquare$	158	100	$_{\rm sc}$	$\mathbf{r}$		$\blacksquare$	258	8.6%
Weighted averageeffective interest rate	4.83%	8.6%	8.6%
FINANCIALLIABILITIES
Reset preferenceshares		4,998						4,998	10.0%
Leases and hirepurchase		337	357	468			$\blacksquare$	1,162	8.74%
Secured bank loans	1,000	$_{\rm rec}$	$\blacksquare$	$\overline{a}$	$\overline{a}$		$\blacksquare$	1,000	6.95%
Weighted averageeffective interest rate	6.95%	9.92%	8.74%	8.74%
Year ended 30 June2005
FINANCIAL ASSETS
Cash assets	769							769	4.60%
Weighted averageeffective interest rate	4.60%
FINANCIALLIABILITIES
Cash advance facility	2,975							2,975	6.73%
Leases and hirepurchase	$_{\rm sc}$	554	337	357	468	$_{\rm m}$		1,716	8.14%
Weighted averageeffective interest rate	6.73%	8.14%	8.14%	8.14%	8.14%

Note 25: COMMITMENTS AND CONTINGENCIES

Operating lease commitments - Consolidated entity as lessee

The Consolidated entity has entered into commercial property leases on its office space requirements. Operating leases have an average lease term of 5.8 years. Assets, which are the subject of operating leases, include office space and items of office machinery.

Future minimum rentals payable under non-cancellable operating leases as at 30 June are as follows:

	CONSOLIDATED		HOMELOANSLIMITED
	2006$'000	2005$'000	2006$'000	2005$'000
Within one year	1,642	1,548	1.642	1,548
After one year but not more than five years	6,185	6,164	6,185	6,164
More than five years	2,774	4.043	2,774	4,043
	10,601	11,754	10,601	11,754

Operating lease commitments - Consolidated entity as lessor

The Consolidated entity has entered into commercial property leases on its surplus office space requirements. Operating leases have an average lease term of 6.3 years.

Future minimum rentals receivable under non-cancellable operating leases as at 30 June are as follows:

	CONSOLIDATED		HOMELOANSLIMITED
	2006$'000	2005$'000	2006$'000	2005$'000
Within one year	238	46	238	46
After one year but not more than five years	1,404	198	1,404	198
More than five years	18	72	18	72
	1,660	316	1,660	316

The average discount rate implicit in the leases is 8.74% (2005: 8.14%).

Contingent liabilities and capital commitments

The directors were not aware of any contingent liabilities or capital commitments as at the end of the financial year or arising since balance date.

Finance lease commitments - Consolidated entity as lessee

The Consolidated entity has entered into finance leases of plant and equipment. The leases have an average lease term of 4.8 years with the option to purchase the asset at the completion of the lease term for the asset's market value. The average discount rate implicit in the leases is 8.74% (2005: 8.14%). The lease liability is secured by a charge over the leased assets.

Future minimum lease payments under finance leases and hire purchase contracts together with the present value of the net minimum lease payments are as follows:

		2006	2005
	MinimumPresent valueof leaseleasepaymentspayments		Minimumleasepayments	Present valueof leasepayments
	$'000	$'000	$'000	$'000
CONSOLIDATED
Within one year	424	337	676	554
After one year but not more than five years	893	825	1,317	1,162
Total minimum lease payments	1,317	1,162	1,993	1,716
Less amounts representing finance charges	(155)	$\sim$	(277)
Present value of minimum lease payments (Note17)	1,162	1.162	1,716	1,716

		2006	2005
	Minimumleasepayments	Present valueof leasepayments	Minimumleasepayments	Present valueof leasepayments
	$'000	$'000	$'000	$'000
PARENT
Within one year	424	337	676	554
After one year but not more than five years	893	825	1,317	1,162
Total minimum lease payments	1,317	1.162	1,993	1,716
Less amounts representing finance charges	(155)	$\overline{\phantom{a}}$	(277)	$\blacksquare$
Present value of minimum lease payments (Note17)	1,162	1,162	1,716	1,716

The weighted average interest rate impact in the leases for both the Consolidated entity and Homeloans is 8.74% (2005: 8.14%).

Note 26: RELATED PARTY DISCLOSURES

The consolidated financial statements include the financial statements of Homeloans Limited and the subsidiaries listed in the following table:

Name	Country of		% Equity interest	Investment
	incorporation	2006	2005	2006	2005
		$'000	$'000	$'000	$'000
Chief Entity
Homeloans Limited
Controlled entities of HomeloansLimited:
NSW Home Loans Pty Ltd	Australia	100%	100%
VIC Home Loans Pty Ltd	Australia	100%	100%
QLD Home Loans Pty Ltd	Australia	100%	100%
SA Home Loans Australia PtyLtd	Australia	100%	100%
WA Home Loans Australia PtyLtd	Australia	100%	100%
IF & I Securities Pty Ltd	Australia	100%	100%
FAI First Mortgage Pty Ltd	Australia	100%	100%	7.115	7,115
Access Home LoansConsolidated incorporating:				11,723	11,723
- Access NetworkManagement Pty Ltd	Australia	100%	100%
- Access Home Loans Pty Ltd	Australia	100%	100%
- HLL Pty Ltd	Australia	100%	100%
St Michael Investments Pty Ltd	Australia	100%	100%
Match Funds ManagementLimited	Australia	100%	100%	340	340
				19,178	19,178

The following table provides the total amount of transactions that were entered into with related parties for the relevant financial year (for information regarding outstanding balances at year-end, refer to note 9 and note 17).

		Sales torelatedparties	Purchasesfromrelatedparties	Amountsowed byrelatedparties	Amountsowed torelatedparties
Related party		$'000	$'000	$'000	$'000
PARENT
Subsidiaries:
FAI First Mortgage Pty Ltd	2006	4,564		4,023
	2005	5,466	w.	2,679
Access Network ManagementPty Ltd	2006			$\blacksquare$	4,661
	2005	450			4.111
Match Funds ManagementLimited	2006		w.	8
	2005			5
St Michael Investments Pty Ltd	2006		ł.	5
	2005			5
Residential Mortgage Trusts	2006	5,142		$_{\rm{ref}}$	2,810
	2005	972	$\tilde{\phantom{a}}$	$\overline{\phantom{a}}$	1,040
Associate:
Mosaic Financial Services PtyLtd	2006			17

* Transaction between subsidiaries:

FAI First Mortgage Pty Ltd (FAI) is the sole beneficiary of the Residential Mortgage Trust holding the sole income unit for each securitisation trust that is on issue. FAI receives a fee as manager, a fee as servicer of the trust, and the excess distribution payable at the monthly anniversary date after payment of all third parties including bondholders and the warehouse facility provider (Westpac Banking Corporation).

FAI does not pay anything to the trust, nor does it pay the trust for any services.

The loans to and from subsidiaries are interest free and are on demand.

Associate

The group has a 23.67% interest in Mosaic Financial Services Pty Ltd (acquired 1 July 2005).

EVENTS AFTER THE BALANCE SHEET DATE Note 27:

There were no significant events after the balance date.

Note 28: AUDITORS' REMUNERATION

The auditor of Homeloans Limited is Ernst & Young.

		CONSOLIDATED		HOMELOANSLIMITED
	2006	2005	2006	2005
	$	$	$	$
Amounts received or due and receivable by Ernst& Young (Australia) for:
. an audit or review of the financial report of theentity and any other entity in the consolidatedgroup	366,128	90,150	320,185	80,150
• other services in relation to the entity and anyother entity in the consolidated group
- tax compliance	21,583	115,554	21,583	115,554
- accounting advice		6,800		6,800
	21,583	122,354	21,583	122,354
	387,711	212,504	341,768	202,504

Note 29: DIRECTORS AND EXECUTIVE DISCLOSURES

Details of Key Management Personnel $(a)$

$(i)$ Directors
T.A.Holmes Chairman (Non-Executive)
B.D.Jones Managing Director
R.P.Salmon Director (non-executive)
R.N.Scott Director (non-executive)
J.L.A.Smith Finance Director
$(ii)$ Executives

T.Phillips	General Manager Sales (also a Director of MAS)
L.McDonald	National Head of Underwriting
K.Carter	National Manager Human Resources
A.Curr	National Marketing Manager

$(b)$ Compensation of Key Management Personnel

$(i)$ Compensation Policy

The Board of Directors of Homeloans Limited is responsible for determining and reviewing compensation arrangements for the directors and the executive team. The Board assesses the appropriateness of the nature and amount of emoluments of such officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality board and executive team. Such officers are given the opportunity to receive their base emolument in a variety of forms including cash and fringe benefits such as motor vehicles and expense payment plans. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the company.

To assist in achieving these objectives, the Board links the nature and amount of executive directors' and officers emoluments to the company's financial and operational performance.

In addition, all executives are entitled to annual bonuses payable upon the achievement of KPIs and annual corporate profitability measures, the most important being return on shareholder's equity.

$(A)$ Nomination and Remuneration Committee

The Nomination and Remuneration Committee of the Board of Directors of Homeloans Limited is responsible for determining and reviewing compensation arrangements for the directors and other key management personnel.

The Nomination and Remuneration Committee assesses the appropriateness of the nature and amount of compensation of key management personnel on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality board and executive team.

$(B)$ Non-executive Director Compensation

Objective

Structure

The Constitution and the ASX Listing Rules specify that the aggregate remuneration of non-executive directors shall be determined from time to time by a general meeting. An amount not exceeding the amount determined is then divided between the directors as agreed. At last year's annual general meeting the aggregate maximum sum available for the remunerate of non-executive directors was increased to $250,000 per anum with effect from and including 1 January 2006.

Each director receives a fee for being a director of the company. No additional fee is paid for each board committee on which a director sits.

$(C)$ Executive Compensation

Objective

The company aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the company and so as to:

reward executives for company, business unit and individual performance against targets set by $\bullet$ reference to appropriate benchmarks;
align the interests of executives with those of shareholders;
link reward with the strategic goals and performance of the company; and $\bullet$
ensure total remuneration is competitive by market standards.

Structure

In determining the level and make-up of executive remuneration, the Board will from time to time engage an external consultant to provide independent advice both in the form of a written report detailing market levels of remuneration for comparable executive roles as well as the participation of the independent consultant in the meeting from which the Committee makes its recommendations to the Board.

Remuneration consists of the following key elements:

Fixed Remuneration
Variable Remuneration
- Short Term Incentive ('STI'); and
- Long Term Incentive ('LTI').

The proportion of fixed remuneration and variable remuneration (potential short term and long term incentives) is established for each senior manager by the Board.

Fixed Compensation $(D)$

Objective

The level of fixed remuneration is set so as to provide a base level of remuneration which is both appropriate to the position and is competitive in the market.

Fixed remuneration is reviewed annually by the Board and the process consists of a review of companywide, business unit and individual performance, relevant comparative remuneration in the market and internal and, where appropriate, external advice on policies and practices. As noted above, the Board has access to external advice independent of management.

Structure

Senior managers are given the opportunity to receive their fixed (primary) remuneration in a variety of forms including cash and fringe benefits such as motor vehicles and expense payment plans. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the company.

$(E)$ Variable Compensation - Short Term Incentive (STI)

Objective

Structure

Actual STI payments granted to each senior manager depend on the extent to which specific operating targets set at the beginning of the financial year are met. The operational targets consist of a number of Key Performance Indicators (KPIs) covering both financial and non-financial measures of performance. Typically included are measures such as contribution to net profit after tax, customer service, risk management, product management, and leadership/team contribution. The company has predetermined benchmarks which must be met in order to trigger payments under the short term incentive scheme.

On an annual basis, after consideration of performance against KPIs, an overall performance rating for the company and each individual business unit is approved by the the Board. The individual performance of each executive is also rated and all three ratings are taken into account when determining the amount, if any, of the short term incentive pool that is allocated to each executive.

The aggregate of annual STI payments available for executives across the company is subject to the approval of the Board. Payments made are usually delivered as a cash bonus.

$(F)$ Variable Pay - Long Term Incentive (LTI)

Objective

The objective of the LTI plan is to reward senior managers in a manner which aligns this element of remuneration with the creation of shareholder wealth.

Structure

LTI grants to executives are delivered in the form of options.

Table 3 on page 16 provide details of options granted, the value of options, vesting periods and lapsed options under the LTI plan.

$(ii)$ Compensation of Key Management Personnel (Consolidated) for the year-ended 30 June 2006

			Short-Term			Post Employment	Long-Term	Share-basedPayment	Total	TotalPerformanceRelated
30 June 2006	Salary &Fees	CashBonus	NonMonetarybenefits	Other	Superannuation	Retirementbenefits	IncentivePlans	Options
	$	$	$	$	$	$	$.	$	$
Directors
T.A.Holmes*	166,723	$\overline{\phantom{a}}$	2,767	$\overline{\phantom{a}}$	11,630				181,120	0%
R. P Salmon *	154,223	$\overline{\phantom{a}}$	2,767	$\tilde{\phantom{a}}$	11,630			$\overline{ }$	168,620	0%
B.D. Jones	275,000	$\cdot$	4.854	۰	24,750	$\cdot$	$\overline{\phantom{a}}$	75,887	380,491	55%
R. N. Scott	50,000	$\cdot$	$\blacksquare$	$\blacksquare$	-	$\cdot$	$\cdot$	$\cdot$	50,000	0%
J.L.A.Smith	240,000	60,000	4854	$\overline{\phantom{a}}$	21,600	$\overline{\phantom{a}}$	۰	77,726	404,180	34%
ExecutivesL.McDonald	150,000	50,000	4.854		13,500		$\overline{\phantom{a}}$	11,375	229,729	27%
T. Phillips **	282,271		$\overline{a}$	$\cdot$	÷	$\scriptstyle\star$	۰	24,186	306,457	100%
K. Carter	125,000	40,000	2,767	$\overline{\phantom{a}}$	11,250	$\ddot{}$	۰	15,725	194,742	29%
A. Curr	117,500	25,000	$\blacksquare$	$\overline{\phantom{a}}$	10,575	$\scriptstyle\star$	۰	8,950	162,025	26%
	1,560,717	175,000	22,863	۰	104,935	$\cdot$	$\overline{\phantom{a}}$	213,849	2,077,364

* T. A. Holmes and R.P. Salmon were executive directors until 31 December 2005.

** T. Phillips is a director of Mortgage Asset Services Pty Ltd (MAS). Troy's services as General Manager Sales for the Consolidated entity are remunerated by way of a commission payment to MAS monthly based on home loans settled during the previous month. This amounted to $282,271 in the current financial year. MAS also holds 2,500,000 options over unissued shares in Homeloans Limited. The amortised value of these options during the year has been included. None of the remuneration noted above was actually paid directly to Troy Phillips.

	Short-Term					Post Employment	Long-Term	Share-basedPayment	Total	TotalPerformanceRelated
	Salary &Fees	CashBonus	NonMonetarybenefits	Other	Superannuation	Retirementbenefits	IncentivePlans	Options
30 June 2005	$	$	$	$	$	$	$	$	$	₩
Directors
T.A.Holmes	160,218	$\blacksquare$	2,986	$\blacksquare$	89,629	$\cdot$		$\blacksquare$	252,833	0%
R. P Salmon	160,218	$\blacksquare$	2,986	$\blacksquare$	89,629		۰	÷	252,833	0%
B.D. Jones	231,528	300,000	4,612	$\blacksquare$	20,838	$\cdot$	÷	103,030	660,008	61%
R. N. Scott	42,500			÷,					42,500	0%
Executives										19%
J.L.A.Smith	229,410	40,000	4,612	$\blacksquare$	24,247		۰	21,953	320,222
T. Phillips **	73,020	$\blacksquare$	$\overline{\phantom{a}}$	$\blacksquare$	÷	$\overline{ }$	۰	148,222	221,242	100%
J. McGee	316,944	$\overline{a}$	121	$\blacksquare$	28,525	$\overline{ }$		18,490	364,080	5%
K.Carter	153,340	15,000	2,986	$\blacksquare$	13,801	$\ddot{}$		2,232	187,359	9%
L.McDonald	82,283	$\tilde{\phantom{a}}$	1,996	492	20,980	$\ddot{}$	÷	2,232	107,983	2%
A.Curr	123,455	10,000	$\tilde{\phantom{a}}$	$\blacksquare$	11,111	۰	۰	1,116	145,682	8%
	1,572,916	365,000	20,299	492	298,760		۰	297,275	2,554,742

$(iii)$ Compensation by Category: Key Management Personnel

		CONSOLIDATED		HOMELOANS LIMITED
	2006	2005	2006	2005
	$	$	$	$
Short-Term	1,758,580	1,958,707	1,758,580	1,958,707
Post Employment	104,935	298,760	104,935	298,760
Other Long-Term	$\overline{a}$
Termination Benefits	$\overline{a}$
Share-based Payment	213,849	297,275	213,849	297,275
	2,077,364	2,554,742	2,077,364	2,554,742

$(iv)$ Contracts for Services

Employment contracts

No executives are currently employed under a fixed term contract.

Upon termination all vested options remain in place.

Managing Director

Under his conditions of employment, the employment of the Managing Director may be terminated: by the Company by giving 12 months notice; or,

by the Managing Director giving the Company 3 months notice.

The Company may make a payment in lieu of requiring the service of the notice period.

Upon termination of employment, the Managing Director is also entitled to his statutory entitlements to accrued annual and long service leave.

Upon termination of employment by the Managing Director giving notice, the Managing Director is entitled to any STI than would otherwise be payable.

Finance Director

Upon termination of employment, the Finance Director is entitled to his statutory entitlements to accrued annual and long service leave.

Mortgage Asset Services Pty Ltd

The services of the General Manager Sales are provided by way of a contract with Mortgage Asset Services Pty Ltd ("MAS"). This contract may be terminated by either party, by giving 3 months notice.

Other Key Management Personnel

Upon termination of employment, the Key Management Personnel are entitled to their statutory entitlements to accrued annual and long service leave.

$(c)$ Compensation options: Granted and vested during the year (Consolidated)

During the financial year, options were granted as equity compensation benefits to certain specified directors and specified executives as disclosed below. The options were issued free of charge. Each option entitles the holder to subscribe for one fully paid ordinary share in the entity at various exercise prices. The options may only be exercised immediately on vesting and expire between one and five years after vesting. The options granted vest at various times up to three years from grant. All options granted during the financial year are not subject to meeting key performance criteria except for those issued to Mortgage Asset Services (MAS). The benefit of MAS is disclosed as part of the remuneration for the specified executive. Trov Phillips.

	Vested	Granted				Terms & Conditions for each Grant
	No.	No.	GrantDate	Fairvalueperoption atgrantdate(5)	Exerciseprice peroption(5)	Expirydate	FirstExercisedate	LastExercisedate
30 June 2006
Directors
B.D.Jones		315,000	23/11/2005	0.1459	0.36	31/8/2009	31/8/2006	31/8/2009
	÷	310,000	23/11/2005	0.1294	0.46	31/8/2010	31/8/2007	31/8/2010
	500,000	500.000	1/12/2004	0.0872	0.50	1/12/2009	1/6/2006	1/12/2009
J.L.A.Smith		100,000	14/10/2005	0.1859	0.36	31/8/2009	31/8/2006	31/8/2009
	÷	150,000	14/10/2005	0.1583	0.46	31/8/2010	31/8/2007	31/8/2010
	100,000	100,000	1/4/2003	0.1398	0.50	21/1/2008	21/1/2006	21/1/2008
	w.	200,000	20/2/2006	0.1535	0.42	31/8/2009	31/8/2006	31/8/2009
		300,000	20/2/2006	0.1363	0.42	31/8/2010	31/8/2007	31/8/2010
Executives
L.McDonald		30,000	14/10/2005	0.1859	0.36	31/8/2009	31/8/2006	31/8/2009
		45,000	14/10/2005	0.1583	0.46	31/8/2010	31/8/2007	31/8/2010
K.Carter	w.	50,000	14/10/2005	0.1859	0.36	31/8/2009	31/8/2006	31/8/2009
		75,000	14/10/2005	0.1583	0.46	31/8/2010	31/8/2007	31/8/2010
A.Curr	w.	30,000	14/10/2005	0.1859	0.36	31/8/2009	31/8/2006	31/8/2009
	w,	45,000	14/10/2005	0.1583	0.46	31/8/2010	31/8/2007	31/8/2010
T.Phillips*	$\blacksquare$	250,000	7/4/2006 (A)	0.1456	0.36	7/12/2009	30/9/2006	7/12/2009
	$\blacksquare$	250,000	7/4/2006 (B)	0.1154	0.46	7/12/2009	31/3/2007	7/12/2009
		250,000	7/4/2006 (C)	0.1058	0.51	7/12/2009	31/12/2007	7/12/2009
Total	600,000	3,000,000

A - only exercisable if average mortgage settlements in any three (3) month period prior to 30 September 2006 exceeds $100 million per month

B - only exercisable if average mortgage settlements in any three (3) month period prior to 31 March 2007 exceeds $112.5 million per month

C - only exercisable if average mortgage settlements in any three (3) month period prior to 31 December 2007 exceeds $137.5 million per month

	Vested	Granted				Terms & Conditions for each Grant
	No.	No.	GrantDate	Fairvalueperoption atgrantdate$($ $)	Exerciseprice peroption(5)	Expirydate	FirstExercisedate	LastExercisedate
30 June 2005
Directors
B.D.Jones	375,000	375,000	1/12/2004	0.1019	0.40	1/12/2009	1/12/2004	1/12/2009
	500.000	500.000	1/12/2004	0.0959	0.45	1/12/2009	1/6/2005	1/12/2009
		500,000	1/12/2004	0.0872	0.50	1/12/2009	1/6/2006	1/12/2009
Executives
J.Smith	100,000	$\blacksquare$	29/4/2002	0.2724	0.994	1/4/2007	1/4/2005	1/4/2007
	100,000	$\overline{\phantom{a}}$	1/4/2003	0.1398	0.52	21/1/2008	21/1/2005	21/1/2008
		100,000	14/1/2005	0.1420	0.35	14/12/2009	14/12/2006	14/12/2009
		100,000	14/1/2005	0.1420	0.35	14/12/2009	14/12/2007	14/12/2009
T.Phillips	750,000	750,000	7/12/2004	0.1098	0.40	7/12/2009	7/12/2004	7/12/2009
	ä,	1,000,000	7/12/2004	0.1010	0.45	7/12/2009	31/3/2006	7/12/2009
	÷	1,000,000	7/12/2004	0.0924	0.50	7/12/2009	31/3/2007	7/12/2009
J.McGee	250,000	$\overline{\phantom{a}}$	2/5/2002	0.2867	0.994	1/4/2007	1/4/2005	1/4/2007
L.McDonald		50,000	14/1/2005	0.1420	0.35	14/12/2009	14/12/2006	14/12/2009
		50,000	14/1/2005	0.1420	0.35	14/12/2009	14/12/2007	14/12/2009
K.Carter		50,000	14/1/2005	0.1420	0.35	14/12/2009	14/12/2006	14/12/2009
		50,000	14/1/2005	0.1420	0.35	14/12/2009	14/12/2007	14/12/2009
A.Curr		25,000	14/1/2005	0.1420	0.35	14/12/2009	14/12/2006	14/12/2009
		25,000	14/1/2005	0.1420	0.35	14/12/2009	14/12/2007	14/12/2009
Total	2,075,000	4,575,000

$(d)$ Shares issued on exercise of compensation options (Consolidated)

No shares were issued during the years ended 30 June 2006 or 30 June 2005 on exercise of Compensation Options.

Option holdings of Key Management Personnel (Consolidated) $(e)$

						Vested at 30 June 2006
	Balanceatbeginning ofperiod 1July 05	Granted asremuneration	Optionsexercised	NetChangeOther #	Balanceat endofperiod30 June06	Total	Exercisable	NotExercisabl€
30 June 2006
Directors
B.D.Jones	1,375,000	625,000	$\cdot$		2,000,000	2,000,000	1,375,000	625,000
J.L.Smith	600,000	750,000	$\cdot$	$\overline{\phantom{a}}$	1,350,000	1,350,000	400,000	950,000
R.N.Scott	300,000		٠	(300,000)
Executives
L.McDonald	100,000	75,000	٠	$\scriptstyle\star$	175,000	175,000	÷	175,000
K.Carter	100,000	125,000	$\overline{\phantom{a}}$	$\overline{\phantom{a}}$	225,000	225,000	$\cdot$	225,000
T.Phillips	2,750,000	750,000	۰	(1,000,000)	2,500,000	2,500,000	750,000	1,750,000
A.Curr	50,000	75,000	$\cdot$	$\overline{r}$	125,000	125,000	۰	125,000
Total	5,275,000	2,400,000	۰	(1,300,000)	6,375,000	6,375,000	2,525,000	3,850,000

Includes forfeits and offer to all employees under the Employee Share Scheme.

						Vested at 30 June 2005
	Balanceatbeginning ofperiod 1July 04	Granted asremuneration	Optionsexercised	NetChangeOther #	Balanceat endofperiod30 June05	Total	Exercisable	NotExercisablе
30 June2005

Directors
R.N.Scott	300,000	٠	۰	$\ddot{}$	300,000	300,000		300,000
B.D.Jones	÷	1,375,000	÷	$,$	1,375,000	1,375,000	500,000	875,000
Executives
J. McGee	1,000,000		÷	$,$	1,000,000	1,000,000		1,000,000
J. Smith	400,000	200.000	۰.	$\cdot$	600.000	600.000	300,000	300,000
T.Phillips		2,750,000	÷	$_{\star}$	2,750,000	2,750,000	2,000,000	750,000
L.McDonald		100,000		$\overline{ }$	100,000	100,000	$\blacksquare$	100,000
K.Carter	÷	100,000	÷	$\overline{\phantom{a}}$	100,000	100,000	÷	100,000
A.Curr	÷	50,000	÷	$\cdot$	50,000	50,000		50,000
Total	1,700,000	4,575,000	٠	$\overline{\phantom{a}}$	6,275,000	6,275,000	2,800,000	3,475,000

Includes forfeits and offer to all employees under the Employee Share Scheme.

Shareholdings of Key Management Personnel

Shares held in Homeloans Limited (number)

	Balance01 July 2005		Granted asremuneration		Options	On exercise of	Net Change Other			Balance30 June 2006
	Ord.	Pref.	Ord.	Pref.	Ord.	Pref.	Ord.	Pref.	Ord.	Pref.
30 June2006
Directors
T.A.Holmes	8,869,781	170,750				۰	150,000	$\overline{\phantom{a}}$	9,019,781	170,750
R.P.Salmon	8,665,366	170,441	$\cdot$		÷	$\blacksquare$	40,000	$\tilde{\phantom{a}}$	8,705,366	170,441
B.D.Jones	50,000	۰	$\blacksquare$		۰	۰	175,952	$\ddot{}$	225,952
J.L.Smith	67,723	208	$\blacksquare$	٠	÷	÷	15,000	÷	82,723	208
R.N.Scott	1,489,794	29,458			÷	$\blacksquare$	$\blacksquare$	$\overline{\phantom{a}}$	1,489,794	29,458
Executives
L.McDonald		$\blacksquare$			÷	$\blacksquare$	$\blacksquare$	$,$
K.Carter	1,048	$\blacksquare$	۰		÷	$\blacksquare$	$\blacksquare$	٠	1,048
T.Phillips	2,419,456	$\blacksquare$			÷	$\blacksquare$	99,355	$\overline{\phantom{a}}$	2,518,811
A.Curr	$\overline{\phantom{a}}$	÷				$\blacksquare$	۰	٠	٠
Total	21,563,168	370,857				$\cdot$	480,307	$\overline{\phantom{a}}$	22,043,475	370,857

	Balance01 July 2004		Granted asremuneration		On exercise ofOptions		Net Change Other		Balance30 June 2005
30 June2005	Ord.	Pref.	Ord.	Pref.	Ord.	Pref.	Ord.	Pref.	Ord.	Pref.
Directors
T.A.Holmes	8,776,281	170,750	$\overline{\phantom{a}}$	$\cdot$		÷	93,500	$\overline{\phantom{a}}$	8,869,781	170,750
R.P.Salmon	8,665,366	170,441	$\overline{\phantom{a}}$	۰	٠	٠	$\blacksquare$	$\overline{\phantom{a}}$	8,665,366	170,441
B.D.Jones	50,000	$\blacksquare$	$\overline{\phantom{a}}$	$\overline{\phantom{a}}$	$\overline{\phantom{a}}$	$\blacksquare$	$\blacksquare$	$\overline{\phantom{a}}$	50,000
R.N.Scott	1,489,794	29,458	$\overline{ }$		$\overline{\phantom{a}}$	$\blacksquare$		÷	1,489,794	29,458
Executives
J.L.Smith	20,766	208					46,957	٠	67,723	208
T.Phillips	377,322	$\blacksquare$					2,042,134	$\overline{\phantom{a}}$	2,419,456
K.Carter	1,048	٠	٠		$\blacksquare$	÷		٠	1,048
T.Phillips	$\overline{\phantom{a}}$	$\blacksquare$	$\overline{\phantom{a}}$	$\overline{\phantom{a}}$	$\scriptstyle\star$	÷	$\blacksquare$	۰	$\blacksquare$
A.Curr	$\overline{\phantom{a}}$	$\blacksquare$	$\cdot$		$\overline{ }$			$\cdot$	$\blacksquare$
								$\mathbf{r}$	$\blacksquare$
Total	19,379,529	370,857					2,182,591	$\overline{\phantom{a}}$	21,562,120	370,857

$(f)$ Other transactions and balances with Key Management Personnel

There were no transaction between key management personnel and the consolidated group during the year. There were no balances owed by/to the key management personnel and any member of the Consolidated Entity.

Note 30: TRANSITION TO AIFRS

For all periods up to and including the year ended 30 June 2005, the Consolidated entity prepared its financial statements in accordance with Australian generally accepted accounting practice (AGAAP). These financial statements for the year ended 30 June 2006 are the first the Consolidated entity is required to prepare in accordance with Australian equivalents to International Financial Reporting Standards (AIFRS).

Accordingly, the Consolidated entity has prepared financial statements that comply with AIFRS applicable for periods beginning on or after 1 January 2005 and the significant accounting policies meeting those requirements are described in note 2. In preparing these financial statements, the Consolidated entity has started from an opening balance sheet as at 1 July 2004, the Consolidated entity's date of transition to AIFRS, and made those changes in accounting policies and other restatements required by AASB 1 First-time adoption of AIFRS.

This note explains the principal adjustments made by the Consolidated entity in restating its AGAAP balance sheet as at 1 July 2004 and its previously published AGAAP financial statements for the year ended 30 June 2005.

Exemptions applied

AASB 1 allows first-time adopters certain exemptions from the general requirement to apply AIFRS retrospectively.

The Consolidated entity has taken the following exemptions:

Comparative information for financial instruments is prepared in accordance with AGAAP and the company and Consolidated have adopted AASB 132: Financial Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement from 1 July 2005.
AASB 3 Business Combinations has not been applied to acquisitions of subsidiaries or of interests in associates and joint ventures that occurred before 1 July 2004.
AASB 2 Share-based Payment has not been applied to any equity instruments that were granted on or before 7 November 2002, nor has it been applied to equity instruments granted after 7 November 2002 that vested before 1 January 2005.

Explanation of material adjustments to the cash flow statement

The material difference between the cash flow statements presented under AIFRS and those presented under AGAAP relates to the consolidation of Residential Mortgage Trust ("RMT"). Under AASB 127 "Consolidated and Separate Financial Statements" the RMT has been consolidated as part of the Homeloans group, and the cash flows through the trusts form part of the consolidated cash flows. These cash flows are significantly larger than those previously recorded in the Homeloans Condensed Cash Flow Statement.

Balance sheet reflectingreconciliation of adjustments to	Note		CONSOLIDATED			HOMELOANS LIMITED
AIFRS as at 1 July 2004		AGAAP$'000	AIFRSImpact$'000	AIFRS$'000	AGAAP$3000	AIFRSImpact$3000	AIFRS$'000
ASSETS
Cash assets	а	623	27,736	28,359	34		34
Receivables	a, e	12,793	(3,867)	8,926	9,763	(1,092)	8,671
Loans and advances to customers	а		562,414	562,414	$\blacksquare$
Deferred expenses	а	32,052	(11, 418)	20,634	29,012	(9,946)	19,066
Other financial assets				$\blacksquare$	18,838		18,838
Plant and equipment	а	2,809	(1)	2,808	2,808		2,808
Goodwill		15,716		15,716
TOTAL ASSETSLIABILITIES		63,993	574,864	638,857	60,455	(11, 038)	49,417
Payables	a, c	4,387	1,529	5,916	5,862	1,823	7,685
Interest-bearing liabilities	а	6,755	587,303	594,058	6,755		6,755
Unearned revenue	а	10,220	(10, 220)	$\blacksquare$	9,229	(9,229)
Lease incentives		609		609	609		609
Deferred income tax liabilities	C	4,597	(1,005)	3,592	4,597	(2,330)	2,267
Provisions		641		641	641		641
TOTAL LIABILITIES		27,209	577,607	604,816	27,693	(9,736)	17,957
NET ASSETS		36,784	(2,743)	34,041	32,762	(1, 302)	31,460
EQUITY
Issued capital		53,395		53,395	53,395		53,395
Reserves	d		6	6		6	6
Accumulated losses	a, c, d,е,	(16, 611)	(2,749)	(19, 360)	(20, 633)	(1,308)	(21, 941)
TOTAL EQUITY		36,784	(2, 743)	34,041	32,762	(1, 302)	31,460

Balance sheet reflectingreconciliation of adjustments to						HOMELOANS LIMITEDAIFRSAIFRS$'000Impact$'000
AIFRS as at 30 June 2005	Note		CONSOLIDATED
		AGAAP$'000	AIFRSImpact$'000	AIFRS$'000	AGAAP$'000
ASSETS
Cash assets	а	1,468	15,478	16,946	769		769
Receivables	a,e,c	10,194	(120)	10,074	9,020	(445)	8,575
Loans and advances to customers	a	$\blacksquare$	496,855	496,855
Deferred expenses	a	34,762	(12, 613)	22,149	29,094	(9, 199)	19,895
Investment in associate					19,178		19,178
Plant and equipment		1,957		1,957	1,957		1,957
Goodwill	b	15,071	925	15,996
TOTAL ASSETS		63,452	500,525	563,977	60,018	(9,644)	50,374
LIABILITIES
Payables	a.c	4,123	1,922	6,045	6,885	2,047	8,932
Interest-bearing liabilities	a	4,691	511,090	515,781	4,691		4,691
Unearned revenue	a	10,993	(10, 993)		9,199	(9, 199)
Lease incentives		665		665	665		665
Deferred income tax liabilities	С	5,611	(823)	4,788	5,611	(2, 492)	3,119
Provisions		573		573	573		573
TOTAL LIABILITIES		26,656	501,196	527,852	27,624	(9,644)	17,980
NET ASSETS		36,796	(671)	36,125	32,394	$\blacksquare$	32,394
EQUITY
Issued capital		53,395		53,395	53,395		53,395
Reserves	d		102	102		102	102
Accumulated losses	a, c, d, e	(16, 599)	(773)	(17, 372)	(21,001)	(102)	(21, 103)
TOTAL EQUITY		36,796	(671)	36,125	32,394	$\blacksquare$	32,394

Balance sheet reflectingreconciliation of adjustments toAIFRS as at 30 June 2005 to
changes under AIFRS effective	Note		CONSOLIDATED		HOMELOANS LIMITED
effective 1 July 2005		AIFRS30 Jun 05$'000	AIFRSImpact$'000	AIFRS1 Jul 05$'000	AIFRS30 Jun 05$'000	AIFRSImpact$'000	AIFRS1 Jul 05$'000
ASSETS
Cash assets		16,946		16,946	769		769
Receivables	$(ii)(iii)$ ,C	10,074	3,760	13,834	8,575	138	8,713
Loans and advances to customers		496,855		496,855
Deferred expenses	(i)(iii)	22,149	(2,679)	19,470	19,895	(425)	19,470
Investment in associate					19,178		19,178
Plant and equipment		1,957		1,957	1,957		1,957
Goodwill		15,996		15,996
TOTAL ASSETSLIABILITIES		563,977	1,081	565,058	50,374	(287)	50,087
Payables	(i)(iii)	6,045	731	6,776	8,932	(245)	8,687
Interest-bearing liabilities	(ii)	515,781	23	515,804	4,691		4,691
Reset preference shares	(i)		4,905	4,905		4,905	4,905
Lease incentives		665	$_{\rm rec}$	665	665		665
Deferred income tax liabilities	$c$ , (iii)	4,788	195	4,983	3,119	(68)	3,051
Provisions		573		573	573		573
TOTAL LIABILITIES		527,852	5,854	533,706	17,980	4,592	22,572
NET ASSETS		36,125	(4, 773)	31,352	32,394	(4,879)	27,515
EQUITY
Issued capital	(i)	53,395	(4, 771)	48,624	53,395	(4, 771)	48,624
Reserves		102		102	102		102
Accumulated losses	(i)(ii)c	(17, 372)	(2)	(17, 374)	(21, 103)	(108)	(21, 211)
TOTAL EQUITY		36,125	(4, 773)	31,352	32,394	(4,879)	27,515

Homeloans Limited-Annual Report

$\overline{\phantom{a}}$

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 (CONTINUED)

Income statement for the yearended 30 June 2005

	Note	CONSOLIDATED		HOMELOANS LIMITED
		AGAAP$'000	AIFRSimpact$'000	AIFRS$'000	AGAAP$'000	AIFRSImpact$'000	AIFRS$'000
Interest income	a, e	183	38,397	38,580	144	(75)	69
Interest expense	a	(466)	(32, 377)	(32, 843)	(466)	10	(456)
Net interest income		(283)	6,020	5,737	(322)	(65)	(387)
Fees and commission income	а	36,870	(4,078)	32,792	28,520		28,520
Fees and commission expense	а	(14, 460)	(740)	(15,200)	(14, 226)	717	(13, 509)
Other operating income		355		355	6,241		6,241
General administrative expenses	a,e	(8, 346)	824	(7, 522)	(7,952)	918	(7,034)
Other operating expenses	a,b,d	(12, 590)	116	(12, 474)	(11, 654)	(96)	(11, 750)
Profit before income tax		1,546	2,142	3,688	607	1,474	2,081
Income tax expense	с	(1,030)	(166)	(1, 196)	(471)	(268)	(739)
Net profit after income tax		516	1,976	2,492	136	1,206	1,342
Net profit attributable to membersof the Homeloans Limited		516	1,976	2,492	136	1,206	1,342
Basic earnings per share (cents pershare)		0.02		3.95
Diluted earnings per share		0.77		3.70
Unfranked dividend per share
Ordinary shares		1.5		0.0

Impact of adopting AIFRS

Outlined below are the areas impacted upon adoption of AIFRS, including the financial impact on equity and profit.

Reference	Item	AGAAP	AIFRS	Impact ($'000)

a	Consolidation	Residential Mortgage Trust	The Consolidated entity utilises a special	CONSOLIDATED	PARENT
		(RMT) was not	purpose vehicle (SPV), which issues securitiesto investors. This SPV meets the criteria of beingconsolidated undera 'subsidiary' under AASB 127 - Consolidatedand separate financial statements. This	Af transition: Retained Earnings decreased $1,934	At transition:
		Homeloans Limited and			Cash - increase $27,736	Decrease in deferred
		was a standalone		Receivables - decrease $2,080	expenses $9,946
		securitisation trust.	transaction does not meet the criteria underAASB 139 Financial Instruments: Recognition	Deferred expenses - decrease $11,418	Increase in receivables onre-allocation of deferred
			and Measurement in regards to derecognition of	Loans & advances - increase $562,414	expenses to subsidiary on
			financial instruments. Accordingly, the value of	Payables - increase $1,500	consolidation of RMT $716
			the securitised loans and correspondingliabilities has been recorded in the balance sheet	Interest Bearing Liabilities- increase $587,303	Unearned revenue decrease
			using the effective interest method with the	Unearned revenue - decrease $10,220	of $9.229
			related interest earned and interest paid		At 30 June 2005:
			recognised through the consolidated incomestatement.	At 30 June 2005 the following assets & liabilitieschanged:	Decrease in deferred
				Cash - increase$15.478	expenses $9,199
				Receivables - increase $816	Increase in receivables &
					Deferred expenses -decrease $12,613	decrease in selling expenses
				Loans & advances - increase $496,855	on reversal of AGAAP entry.AGAAP entry was a re-
				Payables - increase $1,910	allocation of deferred
			Interest Bearing Liabilities- increase $511,090	expenses to subsidiary. Thiswas already recognised on
				Unearned revenue - decrease $10,993	consolidation of RMT in
					At 30 June 2005 the following income andexpense accounts changed:	previous period underAIFRS. Profit increase of
				Interest income - increase $38,473	$716
				Origination income - decrease $972	Unearned revenue decreaseof $9,199
				Mortgage management income - decrease $3,106
				Direct selling expenses -increase $421
				Management expense- increase $320
				Interest expense - increase $32,387
				Other expenses- increase $714

Goodwill	Goodwill was amortised	The Group has chosen to adopt the exemption	CONSOLIDATED	PARENT
	over its useful life (notexceeding 20 years)	available under AASB 1 of not retrospectivelyapplying AASB 3 Business Combinations to itsbusiness combinations occurring beforetransition date. Under AASB 3 Goodwill issubject to annual impairment testing and	Equity at transition: No effectProfit for 30 June 2005: Increase to profit of $925	No effect at any stage
		amortisation of goodwill is strictly prohibited. Anadjustment is thus required to reverse theamortisation charge for 30 June 2005.

The income statement	AASB 112 Income Taxes requires the balance	CONSOLIDATED	PARENT
method was used, whichinvolved tax-effecting onlythose items that impacted	sheet method to be used, which recognisesdeferred tax balances when there is a differencebetween the carrying value of an asset or liability	Transition: A reduction in Provision for DeferredTax by $1,005	Transition: A reduction inProvision for Deferred Tax by
profit and loss.	and its tax base.	Increase in retained earnings $984	$1,005
	UIG 1052 transfers only tax losses and tax	Increase in payables $25	Ilncrease in payables $25
Deferred tax balanceswere transferred to the	credits from the subsidiaries to the haed entity.As a result of the above adjustment, the deferred	At 30 June 2005: Provision for Deferred taxdecreased $823	Increase in retained earnings$984
head office. All recognised	tax liability changed as follows:	Increase in payables $12Increase in retained earnings $976Increase in tax expense $166	UIG Changes: Receivabledecrease $19
deferred tax balances weretransferred to the head			Increase payables $1,798
entity.			Decrease deferred tax
		At 1 July 2005: Decrease in retained earnings $70Increase in provision for deferred tax $70	$1,325
			Decrease retained earnings$497
			At 30 June 2005: Provisionfor Deferred tax decreased$2,492
			Increase in payables $12
			Increase in retained earnings$976
			Increase in tax expense$166
			UIG Changes: Receivabledecrease $491
			Payables increase $2,035
			Deferred tax decrease$1,669
			Reatained earnings increase$125
			At 1 July 2005: Increase inretained earnings $68
			Increase in provision fordeferred tax $70
			Increase in receivables $138
			UIG changes:
			Increase payables $180.Decrease retained earnings$42.
			Decrease deferred tax $138

d	Share-basedpayments	Share-based paymentswere not required to beexpensed	AASB 2 Share-based Payments requires entitiesto recognise an expense in relation to shares.options, and other equity instruments provided toemployees (including directors).These share-based payment transactions mustbe fair valued at grant date and recognised asan expense in profit or loss evenly over thevesting period.An adjustment was required to recognise sharebased payments granted after 7 November 2002and vesting after 1 January 2005.	CONSOLIDATEDEquity at transition: Decrease to retained earningsand increase to employee benefits reserve of $6.Net effect is zero.At 30 June 2005: Decrease to profit of $96Decrease in retained earnings $6	PARENTEquity at transition:Decrease to retainedearnings and increase toemployee benefits reserve of$6. Net effect is zero.At 30 June 2005; Decreaseto profit of $96Decrease in retainedearnings $6
e	Contingent assets	In 2003 Homeloans paidstamp duty to the WAOffice of State Revenue inrespect of the transfer ofassets of IF&I SecuritiesPty Ltd as trustee for theIF&I Securities Unit Trust.This payment was indispute and the valuecarried on the balancesheet on the basis that afull refund was beingsought. Subsequently, inOctober 2005 the matterwas settled and the non-recoverable balance waswritten off in the 2005accounting period.	AASB 137 Provisions, Contingent Liabilities andContingent Assets prohibits the recognition of acontingent asset unless it is virtually certain thatan inflow of economic benefit will arise in respectof an asset in the future. In regards to the StampDuty claim carried as an asset at 30 June 2004under the previous AGAAP. As the amount wasnot virtually certain, under AASB 137 it cannotbe recognised and has been written offCorrespondingly, the write-off under AGAAP inthe year ended 30 June 2005 would need to bereversed.	CONSOLIDATEDAt transition: Charge to retained earnings of$1,789Decrease in receivables by $1,789At 30 June 2005:Interest revenue decreased by $75Interest expense decreased by $10General admin expense decreased by $918Receivables decreased by $936Retained earnings decreased by $1,789	PARENTAt transition: Charge toretained earnings of $1,789Decrease in receivables by$1,789At 30 June 2005:Interest revenue decreasedby $75Interest expense decreasedby $10General admin expensedecreased by $918Receivables decreased by$936Retained earningsdecreased by $1,789

100

Impact of adopting AASB 132 Financial Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement

The Consolidated elected to apply the option available under AASB 1 of adopting AASB 132 and AASB 139 from 1 July 2005. Outlined below are the areas impacted upon adoption of AASB 132 and AASB 139, including the financial impact to equity and profit.

Reference	Item	AGAAP	AIFRS	Impact ($'000)
(i)	Reset preferenceshares	Reset preference shares were treatedas equity and dividends paid wereposted to retained earnings.	Under AASB 132 the definitions of liabilityand equity are more stringent, thusrequiring the reset preference shares to betreated as debt under AIFRS. Payments	CONSOLIDATEDEquity at transition: No effect	PARENTEquity at transition: No effect
				made to Reset Preference shareholders aretherefore classified as interest expenseunder AIFRS.	Equity at 30 June 2005: No effect	Equity at 30 June 2005: No effect
			The cost associated with the issue of thereset preference share issue are charged tothe income statement on an effective yield	Profit for 30 June 2005: No effect	Profit for 30 June 2005: No effect
			basis.	Equity at 1 July 2005: Decreasein shareholders equity of $4,771.a decrease in retained earningsof $134, for amortisation of set upcosts, and an increase in interestbearing liabilities of $4,905	Equity at 1 July 2005: Decreasein shareholders equity of $4,771a decrease in retained earningsof $134 for amortisation of set upcosts, and an increase in interestbearing liabilities of $4,905
				Interest expense of $50 andamortisation charge on set-upcosts of $92	: Interest expense of $50 andamortisation charge on set-upcosts of $92
				Payables increased by $42 fordividend accrued to 30 June	Payables increased by $42 fordividend accrued to 30 June
				Retained earnings decreased by$42	Retained earnings decreased by$42
(i)	Interest rate swap	Interest rate swaps were notrecognised on balance sheet. Net	Under AASB 139, all derivatives must berecognised on balance sheet at fair value.	CONSOLIDATED	PARENT
receipts and payments wererecognised as an adjustment tointerest expense.	The interest rate swap held at 30 June2005 was not designated as a hedge andhas been accounted for as a derivative.	At 1 July 2005Decrease in retained earnings$46	No impact
				Recognition of derivative liabilityof $$23$
				Reduction in prepayments $23

(iii)	Frailing commissions	Trailing commissions paid by thirdparties on Non-Managed Ioans arerecognised as income in the incomestatement.Trailing commission paid by thecompany to internal and externalparties in respect of Non-Managedloans is recognised as an expense inthe income statement.	Under AASB 139 on initial, recognition,trailing commision revenue aandreceivables are recognised at fair value,being the expected future trailingcommission receivables discounted to theirnet present value.	CONSOLIDATEDAs at 1 July 2005: The followingadjustments were made againstretained earnings increasing it by$290Recognise asset for presentvalue of Trailer income receivableof $3.783Recognise liability for presentvalue of Trailer expense payableof $688Write off deferred expenses inrespect of Non-Managed loans.Amount of write off was $2,679Increase in tax liability in respectto the above transactions $125	PARENTAt 1 July 2005Decrease in deferred expenses$425Decrease in payables $425
-------	----------------------	---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------	-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------	------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------	--------------------------------------------------------------------------------------------------

DIRECTORS' DECLARATION

In accordance with a resolution of the directors of Homeloans Limited, I state that:

$\mathbf{1}$ . In the opinion of the directors:
- (a) the financial statements and notes of the company and of the consolidated entity are in accordance with the Corporations Act 2001, including:
  - (i) giving a true and fair view of the company's and consolidated entity's financial position as at 30 June 2006 and of their performance for the year ended on that date; and
  - (ii) complying with Accounting Standards and Corporations Regulations 2001; and
- (b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.
$2.$ This declaration has been made after receiving the declarations required to be made to the directors in accordance with sections 295A of the Corporations Act 2001 for the financial period ending 30 June 2006.

On behalf of the Board

Timothy A. Holmes Executive Chairman

6 October 2006

EIFRAST & YOUNG

The fract & Young Suicity 11 Movarts Ray Road [11] Perth WA 6000 Australia

CPD Box M919 Peth WA 6843

INDEPENDENT AUDIT REPORT TO MEMBERS OF HOMELOANS LIMITED

Scope

The financial report and directors' responsibility

The financial report comprises the balance sheet, income statement, statement of changes in equity, statement of cash flows, accompanying notes to the financial statements, and the directors' declaration for Homeloans Limited (the company) and the consolidated entity, for the year ended 30 June 2006. The consolidated entity comprises both the company and the entities it controlled during that year.

The directors of the company are responsible for preparing a financial report that gives a true and fair view of the financial position and performance of the company and the consolidated entity, and that complies with Accounting Standards in Australia, in accordance with the Corporations Act 2001. This includes responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the financial report.

Audit approach

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

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

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

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

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

We performed procedures to assess whether the substance of business transactions was accurately reflected in the financial report. These and our other procedures did not include consideration or judgement of the appropriateness or reasonableness of the business plans or strategies adopted by the directors and management of the company.

Independence

We are independent of the company and the consolidated entity and have met the independence requirements of Australian professional ethical pronouncements and the Corporations Act 2001. We have given to the directors of the company a written Auditor's Independence Declaration. In addition to our audit of the financial report, we were engaged to undertake the services disclosed in the notes to the financial statements. The provision of these services has not impaired our independence.

Audit opinion

In our opinion the financial report of Homeloans Limited is in accordance with:

$(a)$ the Corporations Act 2001, including:
- giving a true and fair view of the financial position of Homeloans Limited and the $(i)$ consolidated entity at 30 June 2006 and of their performance for the year ended on that date; and
- $(ii)$ complying with Accounting Standards in Australia and the Corporations Regulations 2001; and
$(b)$ other mandatory financial reporting requirements in Australia.

Ernst & Young

R A Kirkby Partner Perth

6 October 2006

AI assistant

RESIMAC GROUP LTD — Annual Report 2006

65714_rns_2006-10-05_f7cb94b2-a15f-45b0-8f24-d70fe7ae5179.pdf

CONTENTS TO FINANCIAL REPORT

CORPORATE INFORMATION

Directors

Bankers

Auditors

DIRECTORS' REPORT

DIRECTORS

Names, qualifications, experience and special responsibilities

TIMOTHY ALASTAIR HOLMES (NON-EXECUTIVE CHAIRMAN)

ROBERT PETER SALMON (NON-EXECUTIVE DIRECTOR)

BRIAN DONALD JONES (MANAGING DIRECTOR)

ROBERT NORMAN SCOTT (NON-EXECUTIVE DIRECTOR)

JARROD LORNE ANDREW SMITH (FINANCE DIRECTOR)

JENNIFER MURRAY (COMPANY SECRETARY)

DIVIDENDS

PRINCIPAL ACTIVITIES

OPERATING AND FINANCIAL REVIEW

Group Overview

Review of operations

Performance Indicators

Operating Results for the Year

Shareholder Returns

Liquidity and Capital Resources

Asset and capital structure

Capital Expenditure

Risk Management

Statement of Compliance

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

SIGNIFICANT EVENTS AFTER THE BALANCE DATE

LIKELY DEVELOPMENTS AND EXPECTED RESULTS

ENVIRONMENTAL REGULATION AND PERFORMANCE

SHARE OPTIONS

Unissued shares

INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS

REMUNERATION REPORT

Remuneration philosophy

Nomination and Remuneration Committee

Remuneration structure

Non-executive director remuneration

Objective

Structure

Senior manager and executive director remuneration

Objective

Structure

Fixed remuneration

Objective

Structure

Variable remuneration - Short term incentive (STI)

Structure

Variable remuneration - Long term incentive (LTI)

Objective

Structure

Employment contracts

Managing Director

Finance Director

Mortgage Asset Services Pty Ltd

Other Key Management Personnel

Remuneration of directors and named executives

TABLE 2: REMUNERATION OF THE 5 NAMED EXECUTIVES WHO RECEIVED THE HIGHEST REMUNERATION FOR THE YEAR ENDED 30 JUNE 2006

Homeloans Limited-Annual Report

TABLE 3: OPTIONS GRANTED AS PART OF REMUNERATION FOR THE YEAR ENDED 30 JUNE 2006

(IN ACCORDANCE WITH THE LTI PLAN)

Fair values of options:

COMPANY PEFORMANCE AND SHAREHOLDER RETURNS

DIRECTORS' MEETINGS

Committee Membership

ROUNDING

AUDITOR INDEPENDENCE AND NON-AUDIT SERVICES

Non-Audit Services

EIFRNST & YOU INC.

Auditor's Independence Declaration to the Directors of Homeloans Limited

CORPORATE GOVERNANCE STATEMENT

Structure of the Board

Board Responsibilities

Chairman of the Board

Succession Planning

Review of Board and Senior Executives' Performance

RESIMAC GROUP LTD Annual Report 2006