TelstraSuper Annual Report 2011

Connecting Australia for twenty years Annual Report 2009/2010

Tabletop Swamp, Litchfield, Northern Territory

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Connecting Australia for twenty years

Telstra Super Annual Report 2009/2010

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Contents

The Year in Review

10

Board of Directors

12

Senior Management Team

14

Achievements in 2009/2010

22

Investment Roundup

26

Investment Performance in 2009/2010

28

Investment Managers

42

About Us

50

Financial Statements

52

Member Stories

Spud Murphy Page 5

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John Banu Page 18

Connecting Australia for twenty years

Lillian Schmitt Page 36

Rachel Wade Page 46

“Telstra Super is the one for me when I retire. It’s carefully managed, the returns are good and the fees are low. The missus has been in other funds and she’s now in Telstra Super as well. We reckon it’s a hands down winner!”

– Spud Murphy

Telstra Super Annual Report 2009/2010

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Connecting Australia for twenty years

Despite the passing of time, the cornerstone of Telstra Super has always remained the same – our members, who live all around Australia and touch every corner of the country.

A number of members have very generously shared their time and stories with us, talking about their aspirations for the next 20 years and beyond. We thank them for allowing us into their lives and being part of this Annual Report.

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Connecting Australia for twenty years

Spud Murphy, 65, Technical Officer, Telstra Howard Springs, Northern Territory Telstra Member since 1990

“Now that I’m just retired, I’ve got less time than ever,” exclaims gung-ho Telstra Super member, Spud Murphy. Alongside a career that began at the Post Master-General’s Department (PMG) in 1967 and continued with Telecom/Telstra for over 40 years, Spud has kept himself occupied by handling local bands’ PA systems, programming and announcing for community radio and fixing Darwin’s broken sewing machines.

“Me and the missus are busy people!” says Spud. “Anne’s just qualified as a registered nurse at age 60 and is now working five days a week. And I’ve been head hunted by the Aboriginal Resource Development Services Inc to be their technical person, looking after 18 radio stations throughout Northeast Arnhem Land.”

Asked if he is looking forward to his retirement Spud says, “I like to help people out. I still plan to be working hard, but I’ll be doing things in a different way and in my own time. It’ll be a different sort of enjoyment.”

What about something just for Spud? “I’d like to have a look around the country. Being a roaming old bloke in a caravan appeals.”

Telstra Super Annual Report 2009/2010

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Connecting Australia for twenty years

“In 1970 PMG Telegraphs sent me up here to do three months in the bush. I fell in love with the place – it was a completely different way of life. So me and the wife packed our bongos and headed on up. We’re still here and the rest is history.”

– Spud Murphy

Telstra Super Annual Report 2009/2010

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The Year in Review

A leader in performance and member service The 2009/2010 year confirmed your super fund is in a strong position.

As markets and economies began to emerge from the fog of the Global Financial Crisis, our investment performance was ranked in the top quartile of all super funds in Australia. Telstra Super’s commitment to excellence resulted in a Top 10 ranking* across all areas of member services, placing us in the upper echelon of high-achievers.

Double-digit returns We are very pleased to be able to announce strong investment performance figures across our range of investment options. Despite the volatility experienced in the last few months leading up to 30 June 2010, around 80% of members have benefited from double-digit returns for the financial year. These results see Telstra Super as one of the most consistent and impressive performers in the country, as assessed by independent ratings agency SuperRatings. See pages 28 – 29 for more information on our investment performance and comparisons to other funds.

Celebrating 20 years The Telecom Superannuation Scheme, as it was then known, started on 1 July 1990. Telstra Super celebrated its 20th birthday on 1 July this year, marking two decades of industry leadership and enviable investment performances.

Since our more modest beginnings, we have grown into a family of more than 100,000 members, with over $10 billion in retirement savings.

Our innovation and commitment to evolving our member service has seen Telstra Super become Australia’s largest corporate super fund, consistently recognised by the super industry as one of the best-performing funds. We have a solid track record of providing first-class services and benefits for our members and their employers.

Building for the next 20 years… and beyond It is important that in celebrating a successful first 20 years, we maintain our focus on strengthening our genuine retirement planning partnerships with our members. This past twelve months has seen Telstra Super developing and enhancing a number of improvements to better, and more efficiently, serve you and your retirement planning needs.

Defensive Growth investment option The 2009/2010 year saw considerable effort on the development of a new investment option, ‘Defensive Growth’, which was launched on 1 July 2010 and has already welcomed many members as investors.

This new option is designed to give more flexibility for members who might be looking to access their super in the short and medium term, and want to continue participating in capital growth. Defensive Growth is uniquely structured to allow our investments team to more readily adjust the level of exposure to growth and defensive assets, based on the performance and confidence of investment markets at any point in time.

Welcoming a new Chairman We welcome David Leggo as our new Chairman, and farewell his predecessor, Clive Batrouney.

David is the former long-serving chair of AvSuper and a strong advocate of member interests. He is a respected superannuation leader and was recognised earlier this year as “Trustee of the Year” by the Australian Institute of Superannuation Trustees. David officially commenced on 1 July 2010.

On behalf of the Board, management, staff and members, I would like to acknowledge and thank Clive, who retired after 7 years as Chairman of Telstra Super. He leaves Telstra Super after steering the fund through the most challenging investment climate faced by the superannuation industry, with the fund continuing its ranking among the top performers in delivering investment returns to our members.

Clive oversaw improvement in service to members and growth in the areas of advice and retirement planning. We thank Clive for his leadership and guidance and wish him well in his retirement.

– Martin Crowe

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Connecting Australia for twenty years

Insurance changes We are now able to offer you more flexible insurance arrangements. If you currently have death or death and disablement insurance with another super fund or life insurance company, you may now be able to transfer that cover to Telstra Super without the need for any additional underwriting.

This initiative enables members to simplify their financial arrangements while taking advantage of Telstra Super’s competitive group insurance rates.

Partnership with HCF This year we announced the formation of an alliance with leading health fund HCF, to offer a significantly discounted health cover option for members. This partnership means members are able to take advantage of the highest health cover discount available – 12% off the standard premiums.

Improved calculators and online educational tools will be rolled out throughout the course of 2010/2011 and we will tell members as they are launched.

Making financial advice more accessible We will also be expanding the team of Super Advisers, and Financial Planning staff will be making more visits to regional locations, enabling more members to enjoy a face-to-face session and have a financial plan tailored for their individual circumstances.

Improving insurance cover We are currently looking at a number of ways to bolster and enhance the insurance cover available to members. We plan to roll out a number of improvements throughout the coming year, which will offer you even greater peace of mind.

HCF was selected after extensive industry research and reflects the synergies between the two funds both organisations are not-for-profit, exist to benefit members and offer award-winning products to suit all ages and life stages.

Our website is regularly updated with news and announcements and, if you would like to talk about any aspect of your Telstra Super membership, please get in touch and we will happily help in any way we can.

Expanding services and member reach We were delighted to introduce a team of dedicated Super Advisers, who are authorised representatives of Telstra Super Financial Planning and can provide you with limited personal advice over the phone.

Telstra Super exists to continue to serve you – our members – and to manage your funds to ensure we maximise your retirement outcomes.

Additionally, we have also spent time improving and expanding the range of member education services we offer. To help deliver more seminars to more members in more places around Australia, we have recruited two financial literacy specialists. Our Member Education team travels around the country and holds member education seminars on a broad range of topics and issues that may affect members of all ages, backgrounds and financial positions.

Martin Crowe Chief Executive

David Leggo Chairman

Looking ahead While the past year has seen some very welcome additions to the range of benefits available to members, now is not a time for your fund to be resting. Continual improvement in service and performance is ingrained within the culture of Telstra Super, and the year ahead will see many exciting new tools and functions available to you.

Improving and expanding your online tools Over the coming year, we are investing time and resources in providing members with even better online tools and services.

We will be working hard to ensure our website continues to offer you new and innovative ways to learn more and better plan for your retirement. * Awarded by independent ratings agency, SuperRatings

Telstra Super Annual Report 2009/2010

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Board of Directors

Telstra Super Pty Ltd has a Board of Directors that is responsible for the operation of Telstra Super Pty Ltd - to ensure Telstra Super is being managed appropriately.

The Board of Directors makes sure that members’ interests are duly represented and that the fund is administered according to the Telstra Super Trust Deed and applicable legislation. The Board of Directors consists of an equal number of employer and member representatives and an independent Chairman.

John Stanhope Employer Director Mr Stanhope is currently the Chief Financial Officer and Group Managing Director of Finance and Administration at Telstra Corporation Ltd and is also a director of Sensis Pty Ltd and TelstraClear Ltd. Mr Stanhope has served as a member of the CPA Australia’s Professional Education Board.

Mr Stanhope was appointed as a director of the Trustee Board at Telstra Super in March 1996.

David Leggo Chairman Mr Leggo is the former longserving chair of AvSuper. He is a respected superannuation leader and was recognised in March 2010 as ‘Trustee of the Year’ by the Australian Institute of Superannuation Trustees.

Mr Leggo spent 35 years of his professional career in the aviation industry, retiring in 2007 from the position of Operations Director, Air Traffic Control at Melbourne Airport.

Mr Leggo was appointed as chairman of the Trustee Board at Telstra Super in July 2010.

Ian McCarthy Member Director Mr McCarthy is currently the NSW Telecommunications and Services (T&S) Branch Secretary for the Communications Electrical Plumbing Union (CEPU). He is also the chair for the NSW Communications Industry Training Advisory Board.

Previously, he was a Technical Officer at Telstra Corporation Ltd and a Federal Industrial Officer for the Australian Telecommunications Employees Association.

Mr McCarthy was appointed as a director of the Trustee Board at Telstra Super in July 2002.

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Connecting Australia for twenty years

Steve Grimaldi Employer Director Mr Grimaldi is currently the Executive Director of HR Shared Services at Telstra Corporation Ltd. Previously, Mr Grimaldi held the position of Vice President, Compensation Benefits & Global Mobility for GE Capital Corporation and was a director of Global Compensation at America Online Inc. Mr Grimaldi was appointed as a director of the Trustee Board at Telstra Super in July 2009.

Gerry Kandelaars Member Director Mr Kandelaars is currently the electorate assistant to Robyn Geraghty (Member for Torrens), and a director of ALP Holdings Pty Ltd. Previously, Mr Kandelaars held the position of Principal Technical Officer at Telstra in the forward planning division, and was the SA/ NT Telecommunications and Services (T&S) Branch Secretary for the Communications Electrical Plumbing Union (CEPU).

Mr Kandelaars was appointed as a director of the Trustee Board at Telstra Super in July 2002.

Carmel Mulhern Employer Director Ms Mulhern is currently the Company Secretary at Telstra Corporation Ltd. Previously, Ms Mulhern held the position of General Counsel, Finance and Administration at Telstra Corporation Ltd and was a senior associate at Mallesons Stephen Jaques.

Jan Price Employer Director Ms Price is currently the Director of Financial Support at Telstra Corporation Ltd. Previously, Ms Price has held various positions within Telstra Corporation Ltd in the finance and administration areas.

Ms Price was appointed as a director of the Trustee Board at Telstra Super in July 2007.

Ms Mulhern was appointed as a director of the Trustee Board at Telstra Super in September 2007.

Grant Belchamber Member Director Mr Belchamber is an Economist with the ACTU, responsible for the provision of briefings on economic conditions and policy issues, including affordable housing, climate change and taxation. He is a member of the South Australian Economic Development Board and the Australian Statistics Advisory Council.

Mr Belchamber was appointed as a director of the Trustee Board at Telstra Super in November 2005.

John Jamieson Member Director Mr Jamieson is currently an organiser for the Community and Public Sector Union (CPSU). He represents the CPSU in regard to the Australian Industrial Relations Commission and the Human Rights Commission as well as superannuation-related matters.

Mr Jamieson has formerly held a range of positions in Telstra, ANZ and Mayne Nickless Ltd and was also self-employed for a number of years.

Mr Jamieson was appointed as a director of the Trustee Board at Telstra Super in February 2010.

Telstra Super Annual Report 2009/2010

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Senior Management Team

The day-to-day administration and management of Telstra Super is the responsibility of the Senior Management Team. All senior managers lead a business unit and carry responsibility for specific areas of fund operations.

Christina Liosis Chief Financial Officer Christina manages all finance and tax functions for Telstra Super and oversees operations for the Finance, Risk & Business Intelligence unit.

Christina is a registered tax agent and joined Telstra Super as Chief Financial Officer in October 2008.

Christina has worked in the superannuation industry her whole career, including senior roles at Mercer Investment Consulting and Cbus Super.

Martin Crowe Chief Executive As Chief Executive of Telstra Super, Martin is responsible for the strategic direction of the fund and oversees every aspect of its operations. He also sits on Telstra Super’s Audit, Risk & Compliance, Remuneration and Investment Committees.

Martin joined Telstra Super in 2000 as Chief Financial Officer and Company Secretary, and was appointed Chief Executive of Telstra Super Pty Ltd in August 2008.

Martin is a Chartered Accountant and prior to joining Telstra Super, held senior positions with National Australia Bank and Ansett Australia.

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Connecting Australia for twenty years

Jim Christensen Chief Investment Officer Jim manages Telstra Super’s investments, which represent over $10 billion.

Jim joined Telstra Super in January 2010 as Chief Investment Officer and is responsible for analysing and assessing investment performance and ensuring members benefit from an efficient and cost effective investment program.

Prior to this, Jim was Managing Director of Queensland Investment Corporation’s (QIC) active management division and a senior economist at the Queensland Treasury.

Kevin Moloney General Manager, Client Development, Marketing & Communications Kevin manages the member education, client development, communications and marketing teams, and carries responsibility for product development.

Kevin was appointed to his role with Telstra Super in early 2009.

He has worked in the superannuation industry his entire professional career, including senior roles with AMP and as a Principal Consultant with Mercer.

Gordon Williamson General Manager, Member Services & Projects Gordon manages all member service and administration functions of the fund, including the contact centre, transactional processing, employer services, insurance and benefit payments, and project management.

Gordon joined Telstra Super in 2000 and was appointed General Manager, Member Services & Projects in 2003.

Prior to joining Telstra Super, Gordon held roles with National Mutual (now AXA), Noble Lowndes and Plum Financial Services.

Steve Miller General Counsel and Company Secretary (TSPL & TSFP) Steve manages all legal and compliance matters for Telstra Super Pty Ltd and Telstra Super Financial Planning Pty Ltd. He is company secretary to both boards and the fund’s Privacy Officer.

Steve joined Telstra Super in 2002 and was appointed to his current role in 2008.

Prior to joining Telstra Super, Steve practiced law in a large private practice firm in Melbourne.

Di Maloney General Manager, Human Resources Di is responsible for managing Telstra Super’s people and culture. Recruitment, learning development and staff relations also form part of her portfolio.

Di joined Telstra Super in 2008 as General Manager, Human Resources.

Prior to this, Di has worked for large, multi-national corporations across a wide range of industries, including Deloitte, Ansett and Telstra. She has extensive experience in managing human resource and people development functions.

Steve Grinter General Manager, Telstra Super Financial Planning Steve manages Telstra Super Financial Planning, which is responsible for providing members with financial planning advice and other retirement planning services.

Steve joined Telstra Super in 2002 and was appointed General Manager, Financial Planning in 2006.

He has been in the finance industry for 32 years and previously held roles with the Commonwealth Bank, National Australia Bank and FRG Financial Resources.

Shane Collister General Manager, Technology Solutions Shane oversees the management of Telstra Super’s IT infrastructure, as well as the operations of all specialist teams within the unit.

Shane joined Telstra Super in June 1997 and was appointed General Manager, Technology Solutions in 2005.

Prior to joining Telstra Super, Shane held roles at AMP, Cocam (now Bravura) and worked as a superannuation software consultant.

Telstra Super Annual Report 2009/2010

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Connecting Australia for twenty years

Swan River, Perth, Western Australia

Telstra Super Annual Report 2009/2010

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“My family’s security is the most important thing to me. That’s why we’re here in Perth – and with Telstra Super. They’re a rock solid fund. I trust them to look after our money and our future.”

– John Banu

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Connecting Australia for twenty years

Telstra Super Annual Report 2009/2010

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Connecting Australia for twenty years

Telstra Super members are a diverse family with a wide variety of employers, jobs, talents, ages, backgrounds, hopes and ambitions. We are all united by the pursuit to achieve our retirement dreams, whatever they may be.

This 2009/2010 Annual Report is a celebration of the reason Telstra Super exists – to help secure the financial wellbeing of you and your loved ones, now and in the future.

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Connecting Australia for twenty years

John Banu, 55, Support Analyst, Sensis Perth, Western Australia Telstra Super member since 1999

The EDSA Revolution in the Phillipines saw Telstra Super member John Banu and his wife, Irene, risk their lives while fighting for their beliefs. In 1987 the couple succeeded in leaving Manila to forge a better life for themselves in Australia.

Today, John remains true to his Filipino culture while embracing all the freedom, space and peace that his family’s new home provides. “Perth is a big city and a small city all at once. Sure, it’s growing, but it’s still incredibly laid back and beautiful.”

Nine-year old twins, Isabel and Guadalupe, are the light of John and Irene’s life. “Simple things give us the most joy,” says John.

“A walk in the park, a spot of shopping. Being able to give our children a good education.”

What does John hope for the future of his girls? “I just pray for them to be safe and secure – and to grow up to be good people.”

Telstra Super Annual Report 2009/2010

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Achievements in 2009/2010

Formed an alliance with leading health fund, HCF, to give members access to significantly discounted health insurance. You and your family can now enjoy a 12% discount on all levels of hospital and extras cover.

Introduced a new and innovative investment option, Defensive Growth. Uniquely structured to adapt to changing investment market conditions, this new option offers greater benefit during growth periods and greater protection during weaker periods.

Recorded strong growth in investment returns after a challenging two years. Accumulation investment returns were: 12.01% for the Growth option, 10.94% for the Balanced option and 8.41% for the Conservative option.

Awarded a Platinum Rating for 2010, the fifth consecutive year in a row. Another important recognition of the fund’s consistent delivery of value-formoney products and services.

Awarded Best International Shares Return 2004-2009 by independent ratings agency, SuperRatings. Emerged as best option from a range of multi-employer superannuation funds, with total assets of over $280 billion and over 13 million member accounts.

Recognised as a Top Ten super fund for the second time.

SuperRatings assess more than 300 of Australia’s leading public, retail, industry and corporate super funds, and rank them on more than 400 criteria including investments, fees, insurance, service delivery, member education and financial planning facilities.

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Connecting Australia for twenty years

Introduced a number of key updates to SuperOnline. New features include full details of all transactions on your super account, the addition of security questions to protect your online identity, and the expansion of existing beneficiary details.

Announced the introduction of pre-populated forms, available through SuperOnline.

Members now have access to forms that already contain their personal details, making it even easier to look after your super.

Confirmed our status as Australia’s largest corporate fund, with a membership family of 101,153 who have $10.6 billion in assets.

Increased the number of member seminars offered around Australia by more than 100%, and doubled the range of educational topics presented. New seminar topics include super and retirement considerations for women, how to budget and manage debt, and what the future holds for the super industry.

Telstra Super Annual Report 2009/2010

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Connecting Australia for twenty years

“To come to a country like Australia where there’s so much freedom of speech and choice is incredible. We never take for granted the freedom our family enjoys here.”

– John Banu

Telstra Super Annual Report 2009/2010

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Investment Roundup

The 2009/2010 financial year saw the global financial system begin to claw its way back following the extended fallout of the GFC.

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Connecting Australia for twenty years

Although economic activity remained well below the peak levels of 2007 and 2008, the global economy as a whole demonstrated a relatively steady rate of expansion, particularly across the second half of the year.

Australia

The world

The Australian stock market returned 13.1% for the year to 30 June. The major sectors that contributed to this positive performance were the property trust sector with 20.3%, followed by the financial sector with 17.8%, the financial (ex LPTs) sector with 17.2%, the information technology sector with 16.9% and the consumer staples sector with 15.8% *

The speed of economic activity in Australia showed consistently strong growth throughout the year, as reflected by the Westpac–Melbourne Institute Leading Index. The index demonstrated ten months of accelerated economic growth following the start of the financial year, before hitting a 12.5 year high of 8.8% growth in March 2010. Westpac Senior Economist, Matthew Hassan said, “the year to March saw the sharpest upturn in the Leading index since the rebound coming out of the early 80s recession.” † Australian economic growth remained well above its long term trend of 3%.

The Australian dollar started the 2009/2010 financial year sitting at $0.80 (USD), but spent much of the following twelve months hovering at the $0.90 (USD) mark. Although volatility in European markets prompted the exchange rate to drop back to $0.81 (USD) in early June, the value of the Australian dollar remained significantly higher than its post-float average of $0.75 (USD).

Financial instability in Greece, Spain and Portugal provided headwinds to economic growth prospects in the wider European region towards the end of the year, which overflowed to some extent to the rest of the world.

The Asian region, including Australia, continued to increase in strength throughout 2009/2010. Growing domestic demand contributed to a number of East Asian economies recording double-digit Gross Domestic Product (GDP) growth, and strong export and industrial production figures during this period.

The United States welcomed positive growth in employment and labour participation throughout the year after significant declines in 2008/2009.

Super returns Despite the market volatility experienced during the last few months of the 2009/2010 financial year, double digit returns were achieved in various asset classes including domestic and international equities, as well as listed property. The combination of these results together with the performance of our other asset classes resulted in five out of eight investment options posting double-digit returns for around 80% of our members for the 12 months to 30 June 2010. Around 80% of members enjoyed this super performance.

* S&P/ASX300 Accumulation Index †

Westpac media release: Leading Index still strong, 16 June 2010 Telstra Super Annual Report 2009/2010

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Investment Performance in 2009/2010

The table below shows the results for each of Telstra Super’s investment options for the 2009/2010 financial year. A more detailed explanation of our investment options and their audited investment returns over the last five years starts on page 30.

2009/2010 investment returns The figures below show the investment returns for members invested in a single investment option for the full financial year. If you switched investment options throughout the year, your investment return will not equal the figures below.

If your super has been invested in a number of investment options, your investment return will depend on the relative combination of investment options you have chosen.

Accumulation member returns*

Telstra Super RetireAccess member returns*

Growth

12.01%

15.02%

Balanced

10.94%

13.13%

Investment option

Conservative

8.41%

9.91%

10.31%

12.25%

Australian Shares

11.85%

15.71%

Property

20.97%

26.16%

Fixed Interest

8.54%

10.14%

Cash

3.29%

3.87%

International Shares

* Investment management fees and taxes have been deducted before calculating these figures; administration fees were not. Telstra Super RetireAccess investment returns are different to Accumulation member returns because they are not subject to tax.

Past performance is not a reliable indicator of future performance.

How your super performed this year Investment returns are credited to your super account according to your chosen investment option’s daily unit price. You can check these on our website daily.

Unit prices The opening and closing unit prices for units in each of our investment options for the 2009/2010 financial year are listed below.

Accumulation* Investment option

1 July 2009 opening unit price

30 June 2010 closing unit price

Telstra Super RetireAccess† 1 July 2009 opening unit price

30 June 2010 closing unit price

Telstra Super Personal Plus‡ 1 July 2009 opening unit price

30 June 2010 closing unit price

Growth

1.44613

1.63590

1.42368

1.64600

1.38219

1.55530

Balanced

1.47574

1.64971

1.46417

1.66092

1.41201

1.57028

Conservative

1.39804

1.51964

1.39185

1.52555

1.33895

1.44841

International Shares

1.33031

1.47683

1.30888

1.47153

1.27397

1.40659

Australian Shares

1.85729

2.10697

1.8682

2.18084

1.77354

2.00216

Property

0.91622

1.12823

0.84235

1.08039

0.87909

1.07819

Fixed Interest

1.23567

1.33972

1.23114

1.34633

1.19204

1.28587

Cash

1.34607

1.39004

1.35064

1.39412

1.29267

1.32813

* This unit price is applicable to Telstra Super Corporate Plus, Telstra Super Casuals, Sensis Super Plus Accumulation and Voluntary Accumulation Accounts or other accumulation accounts held by defined benefit members. Tax and investment management fees have been deducted from these unit prices, but administration fees, insurance and switching costs as applicable have not. † These unit prices include administration fees and investment management fees, but exclude insurance and switching costs as applicable. Telstra Super RetireAccess returns are not subject to tax. ‡ These unit prices include tax, administration fees and investment management fees, but exclude insurance and switching costs as applicable.

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Connecting Australia for twenty years

Comparing our performance to others

Telstra Super outperformed the survey median for four accumulation options for the 12 months to 30 June 2010.

As well as striving to meet our own return objectives, we also benchmark ourselves against the performance of other super funds. We aim to provide members with returns that exceed others in the industry. Using SuperRatings surveys, Telstra Super endeavours to deliver results that rank in the top quartile of each survey.

Our diversified investment options showed a solid performance against SuperRatings fund crediting surveys. Telstra Super’s Balanced investment option achieved the top quartile result of 10.94% for the Balanced Index survey. The Growth option outperformed the Growth Index survey median by 1.89%. The 12 month performance of the Conservative option was 8.41%, only 0.09% below the Capital Stable Index survey median.

In terms of the five year average returns, excluding the Fixed Interest option which is not included in the SuperRatings survey, all our accumulation options outperformed the relevant survey median.

1 year

5 years

Telstra Super

Survey median

Telstra Super

Growth

12.01%

10.12%

3.81%

2.82%

Balanced

10.94%

9.79%

4.69%

3.45%

8.41%

8.50%

4.88%

4.10% -2.05%

Conservative

Survey median

International Shares

10.31%

7.25%

2.61%

Australian Shares

11.85%

12.49%

5.91%

4.82%

Property

20.97%

13.18%

-3.16%

-2.79%

Fixed Interest

8.54%

9.58%*

4.36%

4.91%*

Cash

3.29%

3.34%

4.79%

4.66%

Source: SuperRatings Fund Crediting Surveys * Telstra Super’s Fixed Interest option was not included in the SuperRatings Fund Crediting Rate Survey as it does not meet the criteria for inclusion with a long term allocation of 100% Australian fixed interest.

The asset allocation for each fund referred to in the surveys may vary from the asset allocation of Telstra Super’s investment options. Investment management fees and taxes (where applicable) have been deducted before calculating Telstra Super’s returns; administration fees were not.

Past performance is not a reliable indicator of future performance.

Defined Benefit members If you are a member of Telstra Super Division 2, Telstra Super Division 5 or Sensis Super Plus Defined Benefit, all or most of your super is a defined benefit. Unlike an accumulation account, a defined benefit does not rely on investment returns to grow. Instead, your super is worked out using a formula that is generally based on your salary, your length of service with your employer and the rates at which you have been contributing to your super.

This means that investment returns do not impact the amount of super you get in retirement from your defined benefit. However, Telstra Super invests both employer and member defined benefit contributions in line with the defined benefit objectives and strategies.

Our defined benefit investment objectives • To earn the best possible returns within an appropriate level of risk.

Our defined benefit investment strategy • To control the level of risk by investing in a broad range of quality investments.

• T o reduce risk by using a range of Australian and international investment managers who specialise in cash, fixed interest, shares, alternative asset classes and property.

• T o ensure there are sufficient funds to meet the required payment of benefits.

Defined benefit net earning rates The defined benefit net earning rate was 4.87% on our investment portfolio for 2009/2010.* * Investment management fees and tax are deducted from the gross earnings before setting the net earning rate.

Past performance is not a reliable indicator of future performance.

• T o maintain Telstra Super’s financial viability within the current benefit design and employer contribution rate.

Telstra Super Annual Report 2009/2010

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Investment Performance in 2009/2010 Growth option

Balanced option

2009/2010 returns 12.01% Accumulation member returns 15.02% Telstra Super RetireAccess returns*

2009/2010 returns 10.94% Accumulation member returns 13.13% Telstra Super RetireAccess returns*

Objective To earn high returns over the long term.

Objective To earn moderately high and consistent returns over the medium to long term.

Strategy The Growth option has a strong bias towards growth assets, such as Australian and International shares and property, with a smaller allocation towards financial assets such as Australian and International fixed interest securities and cash.

Strategy The Balanced option has a moderate bias towards growth assets, such as Australian and International shares and property, balanced by an allocation towards financial assets such as Australian and International fixed interest securities and cash.

Asset Allocation

Asset Allocation

30 June 2009

30 June 2009

AUSTRALIAN SHARES 31%

AUSTRALIAN SHARES 40%

DIRECT PROPERTY 4%

LISTED PROPERTY 10%

LISTED PROPERTY 7%

AUSTRALIAN FIXED INTEREST 3%

PRIVATE EQUITY 2%

ABSOLUTE RETURN FUNDS 4%

INFRASTRUCTURE 5%

CASH 3%

CASH 8% AUSTRALIAN FIXED INTEREST 8%

INTERNATIONAL SHARES 40%

INTERNATIONAL FIXED INTEREST 5% ABSOLUTE RETURN FUNDS 3% INTERNATIONAL SHARES 27%

30 June 2010

30 June 2010 AUSTRALIAN SHARES 43%

AUSTRALIAN SHARES 34%

LISTED PROPERTY 10%

DIRECT PROPERTY 4%

PRIVATE EQUITY 5%

LISTED PROPERTY 7%

INFRASTRUCTURE 1%

PRIVATE EQUITY 4%

AUSTRALIAN FIXED INTEREST 4%

INFRASTRUCTURE 5%

INTERNATIONAL FIXED INTEREST 1%

CASH 3%

ABSOLUTE RETURN FUNDS 1%

AUSTRALIAN FIXED INTEREST 11%

CASH 2%

INTERNATIONAL FIXED INTEREST 6%

INTERNATIONAL SHARES 33%

ABSOLUTE RETURN FUNDS 1% INTERNATIONAL SHARES 25%

Volatility/Risk A higher level of volatility to achieve potentially higher returns in the long term. The value of your super may rise or fall in the short term.

Volatility/Risk A medium level of volatility to achieve potentially good returns with less risk of fluctuations in value over the short term.

Risk of negative return 1 year in every 4.

Risk of negative return 1 year in every 5.

Default option The Balanced option is currently the default option for all new Telstra Super Accumulation members aged up to 59 years who do not choose an investment option.

Performance Year

Performance Accumulation member returns

Telstra Super RetireAccess returns*

Accumulation Telstra Super member returns RetireAccess returns*

2009/2010

12.01%

15.02%

2009/2010

10.94%

13.13%

2008/2009

-14.42%

-16.83%

2008/2009

-10.62%

-12.35%

2007/2008

-13.13%

-14.20%

2007/2008

-8.19%

-9.10%

2006/2007

21.13%

23.15%

2006/2007

18.19%

20.13%

2005/2006 5 year average return

19.52%

21.65%

16.87%

18.84%

3.81%

4.22%

2005/2006 5 year average return

4.69%

5.17%

* Telstra Super RetireAccess investment returns are different to Accumulation member returns because Telstra Super RetireAccess returns are not subject to tax.

Past performance is not a reliable indicator of future performance.

30

Year

Connecting Australia for twenty years

* Telstra Super RetireAccess investment returns are different to Accumulation member returns because Telstra Super RetireAccess returns are not subject to tax.

Past performance is not a reliable indicator of future performance.

Conservative option

International Shares option

2009/2010 returns 8.41% Accumulation member returns 9.91% Telstra Super RetireAccess returns*

2009/2010 returns 10.31% Accumulation member returns 12.25% Telstra Super RetireAccess returns*

Objective To earn returns above cash over the medium term, through moderate exposure to growth assets.

Objective To earn higher returns over the longer term through a diversified portfolio of international shares.

Strategy The Conservative option has a bias towards financial assets; in particular a high weighting towards cash to minimise short term fluctuations (risk) but some exposure to growth assets for long term growth (return).

Strategy The International Shares option has 100% exposure to an international shares portfolio and is invested through several investment managers. It aims to achieve exposure to industries and companies that are not part of the Australian share market.

Asset Allocation

Asset Allocation

30 June 2009

30 June 2009 AUSTRALIAN FIXED INTEREST 35% AUSTRALIAN SHARES 10% INTERNATIONAL SHARES 5% DIRECT PROPERTY 2%

INTERNATIONAL SHARES 100%

LISTED PROPERTY 5% INFRASTRUCTURE 7% INTERNATIONAL FIXED INTEREST 5% CASH 31%

30 June 2010

30 June 2010 AUSTRALIAN FIXED INTEREST 29% AUSTRALIAN SHARES 14% INTERNATIONAL SHARES 8% DIRECT PROPERTY 2%

INTERNATIONAL SHARES 100%

LISTED PROPERTY 5% INFRASTRUCTURE 7% INTERNATIONAL FIXED INTEREST 15% CASH 20%

Volatility/Risk A moderate level of volatility for more consistent returns.

Risk of negative return 1 year in every 7.

Default option The Conservative option is currently the default option for all Telstra Super Accumulation members aged 60 years and over who do not choose an investment option.

Volatility/Risk High volatility, reflecting exposure to a single asset class with higher growth/higher risk characteristics as well as some exposure to currency risk.

Risk of negative return 1 year in every 3.

Performance

Performance Accumulation member returns

Telstra Super RetireAccess returns*

2009/2010

8.41%

9.91%

2009/2010

10.31%

2008/2009

-3.30%

-4.15%

2008/2009

-12.53%

-14.38%

2007/2008

-0.30%

-0.48%

2007/2008

-16.76%

-18.28%

2006/2007

10.81%

12.33%

2006/2007

18.22%

19.89%

9.57%

10.97%

19.81%

21.69%

4.88%

5.50%

2005/2006 5 year average return

2.61%

2.76%

Year

2005/2006 5 year average return

Year

Accumulation Telstra Super member returns RetireAccess returns* 12.25%

* Telstra Super RetireAccess investment returns are different to Accumulation member returns because Telstra Super RetireAccess returns are not subject to tax.

* Telstra Super RetireAccess investment returns are different to Accumulation member returns because Telstra Super RetireAccess returns are not subject to tax.

Past performance is not a reliable indicator of future performance.

Past performance is not a reliable indicator of future performance.

Telstra Super Annual Report 2009/2010

31

Investment Performance in 2009/2010 Australian Shares option

Property option

2009/2010 returns 11.85% Accumulation member returns 15.71% Telstra Super RetireAccess returns*

2009/2010 returns 20.97% Accumulation member returns 26.16% Telstra Super RetireAccess returns*

Objective To earn high returns over the long term through a diversified portfolio of Australian shares.

Objective To earn moderately high and consistent returns via income and capital growth over the medium to long term.

Strategy The Australian Shares options is 100% invested in Australian shares. Diversification is achieved through exposure to a number of investment managers with different investment styles.

Strategy The Property option invests exclusively in property based assets, including both listed property and direct property. For diversification reasons, this may include investment in international property.

Asset Allocation

Asset Allocation

30 June 2009

30 June 2009

LISTED PROPERTY 100%

AUSTRALIAN SHARES 100%

30 June 2010

30 June 2010

AUSTRALIAN SHARES 100%

Volatility/Risk Higher volatility, reflecting exposure to a single asset class with high growth/high risk characteristics.

Volatility/Risk Moderate risk to achieve income returns and capital growth over the longer term.

Risk of negative return 1 year in every 3.

Risk of negative return 1 year in every 3.

Performance

Performance

Year 2009/2010

Accumulation Telstra Super member returns RetireAccess returns*

Year

Accumulation Telstra Super member returns RetireAccess returns*

11.85%

15.71%

2009/2010

20.97%

26.16%

-15.93%

-18.40%

2008/2009

-35.69%

-40.52%

2007/2008

-11.54%

-12.15%

2007/2008

-21.76%

-24.69%

2006/2007

28.31%

31.13%

2005/2006 5 year average return

24.83%

27.41%

2006/2007

18.78%

20.99%

2005/2006

17.79%

20.24%

5 year average return

-3.16%

-3.84%

2008/2009

32

LISTED PROPERTY 100%

5.91%

6.75%

* Telstra Super RetireAccess investment returns are different to Accumulation member returns because Telstra Super RetireAccess returns are not subject to tax.

* Telstra Super RetireAccess investment returns are different to Accumulation member returns because Telstra Super RetireAccess returns are not subject to tax.

Past performance is not a reliable indicator of future performance.

Past performance is not a reliable indicator of future performance.

Connecting Australia for twenty years

Fixed Interest option

Cash option

2009/2010 returns 8.54% Accumulation member returns 10.14% Telstra Super RetireAccess returns*

2009/2010 returns 3.29% Accumulation member returns 3.87% Telstra Super RetireAccess returns*

Objective To earn moderate returns over the medium term mainly through income returns. In the short term, returns can be negative from time to time.

Objective To provide security of capital. Returns will reflect short term money market interest rates.

Strategy The Fixed Interest option invests primarily in Australian fixed interest securities and may have exposure to cash. A maximum of 30% may be invested in international fixed interest and a maximum of 50% may be invested in Australian cash, depending on market conditions.

Strategy 100% is invested in cash and short term money market securities.

Asset Allocation

Asset Allocation

30 June 2009

30 June 2009

CASH 100%

AUSTRALIAN FIXED INTEREST 100%

30 June 2010

30 June 2010 INTERNATIONAL FIXED INTEREST 20%

AUSTRALIAN FIXED INTEREST 80%

CASH 100%

Volatility/Risk Lower risk option for generating income returns that generally provides lower returns than equity but returns can be negative.

Volatility/Risk A low level of volatility, but generally lower returns in most years than the other Telstra Super investment options.

Risk of negative return 1 year in every 5.

Risk of negative return nil

Performance

Performance

Year

Accumulation Telstra Super member returns RetireAccess returns*

Year

Accumulation Telstra Super member returns RetireAccess returns*

2009/2010

8.54%

10.14%

2009/2010

3.29%

3.87%

2008/2009

3.78%

4.41%

2008/2009

4.74%

5.55%

2007/2008

1.59%

2.01%

2007/2008

5.53%

6.48%

2006/2007

4.23%

4.96%

2006/2007

5.43%

6.36%

2005/2006 Five-year average return

3.79%

4.48%

4.99%

5.86%

4.36%

5.17%

2005/2006 5 year average return

4.79%

5.62%

* Telstra Super RetireAccess investment returns are different to Accumulation member returns because Telstra Super RetireAccess returns are not subject to tax.

* Telstra Super RetireAccess investment returns are different to Accumulation member returns because Telstra Super RetireAccess returns are not subject to tax.

Past performance is not a reliable indicator of future performance.

Past performance is not a reliable indicator of future performance.

Telstra Super Annual Report 2009/2010

33

34

Connecting Australia for twenty years

Federation Square, Melbourne, Victoria

Telstra Super Annual Report 2009/2010

35

Connecting Australia for twenty years

36

Connecting Australia for twenty years

“I believe that the more you know, the better you can look after yourself. Not only does Telstra Super provide me with easy access to all the advice I Super now you with need“Telstra – I feel confident theyprovides do the best thing with qualitytoEvent et laci rem facient my money make odit it grow.” facillitiam quasperunt andi vollabori blam – Lillian Schmitt que maionecatur moluptatur sed et volor”

Telstra Super Annual Report 2009/2010

37

Connecting Australia for twenty years

Telstra Super is proud to be the retirement planning partner of more than 100,000 members, and is committed to working with you to achieve shared goals. With our eyes fixed firmly on the horizon, we will continue to maintain our thirst for innovation, provide personal service – and strive to do more for you.

38

Connecting Australia for twenty years

Lillian Schmitt, 46, Executive Assistant, Telstra Melbourne, Victoria Telstra Super member since 2000

Having never before set foot on Australian soil, Telstra Super member Lillian Schmitt and husband René opted to leave Amsterdam and migrate to Melbourne – just in time for the new millennium. “You need to do something crazy in your life every now and then,” laughs Lillian. “We wanted a big change.”

One of the aspects of Melbourne Lillian enjoys most is its ever changing climate. “There’s lots of nice weather here. The sun is shining much, much more than in Holland!”

Outdoor living appeals to Lillian and René with the couple taking full advantage of Melbourne’s bay beaches and the city’s vibrant culture.

“I think it’s important to enjoy yourself and have fun in life,” says Lillian. “Don’t take everything too seriously – laugh about things.”

Lillian also recognises the importance of a secure future. “I don’t need to have $20 million in the bank, but it’s nice not to have to worry about money.”

Telstra Super Annual Report 2009/2010

39

“I love the old bits of Melbourne – the little laneways, the arcades and the trams – they all remind me of Amsterdam. This is home now. We’ve made our friends here and we’re happy.”

– Lillian Schmitt

40

Connecting Australia for twenty years

Telstra Super Annual Report 2009/2010

41

Investment Managers as at 30 June 2010

Australian fixed interest securities

Australian shares

• AllianceBernstein Investment Management Australia Limited

• AllianceBernstein Investment Management Australia Limited

• Kapstream Capital Pty Ltd • ME Portfolio Management Limited

• Aviva Investors Australia Ltd (formerly known as Portfolio Partners Limited)

• Schroders Investment Management Australia Limited

• BlackRock Financial Management Inc • BT Funds Management Limited

• Telstra Super Pty Ltd

• IB Australian Bioscience Fund

• Vianova Asset Management

• JF Capital Partners

International fixed interest securities

• Legg Mason Asset Management Australia Limited

• BlackRock Financial Management Inc. • PIMCO Australia Pty Ltd

• LG Investment Group Ltd • Perpetual Investment Management Limited • Schroders Investment Management Australia Limited • Telstra Super Pty Ltd

42

Connecting Australia for twenty years

International shares

Private equity

• Apostle Asset Management Australia Limited (Loomis Sayles & Co, LP)

• Adam Street Partners LLC

• DFA Australia Limited

• Doughty Hanson & Co Managers Limited

• Ironbridge Capital Management

• Goldman Sachs JB Were Asset Management Pty Ltd

• Legg Mason Asset Management Australia Limited (Esemplia Emerging Markets)

• Arclight Capital Partners, LLC

• HarbourVest Partners LLC

• LSV Asset Management

• Knightsbridge Advisors Incorporated

• Martin Currie Investment Management Ltd

• Macquarie Funds Management

• MFS Institutional Advisors (Australia) Limited

• MidEuropa Partner, LLP

• Morgan Stanley Investment Management

• Northgate Capital, LLC

• Schroders Investment Management Australia Limited

• Oaktree Capital Management, LLC

• Treasury Asia Asset Management Limited • Turner Investment Partners Pty Ltd • Vanguard Investments Australia Limited • Wellington International Management Company Pte Ltd Property • AMP Capital Investors Limited

• Quay Partners Pty Ltd • Siguler Guff & Company, LLP • Sun Capital Partners, Inc • The Blackstone Group • Wilshire Australia Pty Ltd Opportunities • Stone Tower Fund Management LLC

• APN Funds Management Limited

Cash

• Australian Property Growth Fund (APGF) • Colonial First State Property Limited

• BT Funds Management Limited Macquarie Investment Management Limited

• Fiduciary Trust International Australia Limited

Currency overlay

• Goodman Funds Management Australia Industrial Limited

• Pareto Partners Australia Pty Ltd

• Investa Properties Limited • Lend Lease Real Estate Investments Limited • Macquarie Investment Management Limited

Global investment grade credit • Omega Global Investors Absolute return funds

• MGPA Limited

• n/a

• Retirement Villages Group

Asset allocation overlay

• Telstra Super Pty Ltd

• Telstra Super Pty Ltd

• Valad Core Plus Management Pty Ltd • Warakirri Asset Management Pty Ltd Infrastructure • Hastings Funds Management Limited • Perpetual Investment Management Limited • RARE Infrastructure Ltd • Telstra Super Pty Ltd

Telstra Super Annual Report 2009/2010

43

Village Ruins, Clare Valley, South Australia

44

Connecting Australia for twenty years

Telstra Super Annual Report 2009/2010

45

“I’ve rolled all my existing super over to Telstra Super. Not only do I get better returns, but also my money stays put instead of going in multiple sets of fees. It’s real peace of mind knowing I’m going to have money in the future to retire on.”

- Rachel Wade

46

Connecting Australia for twenty years

Telstra Super Annual Report 2009/2010

47

Connecting Australia for twenty years

The past two decades have been filled with achievement and growth in the Telstra Super family.

We share the hopes and dreams you have for your future, and we look forward to strengthening the supportive relationships we have with all member families – no matter who you are or where you live.

48

Connecting Australia for twenty years

Rachel Wade, 26, Customer Lead, Bigpond Clare Valley, South Australia Telstra Super member since 2006

Whenever she feels the need to get away from it all, Telstra Super member Rachel Wade heads straight to her mum’s farm in the heart of South Australia’s Clare Valley. “Together with my hubby Simon and my baby boy Zack, my mum’s one of my best friends. We’re very close and catch up whenever we can.”

Rachel finds the empty countryside both a breath of fresh air and a much-valued retreat from her bustling city life. “Mum keeps a menagerie of cats, dogs, sheep, chooks and goats on the farm. It’s just delightful.

When Zack gets bigger he’s going to love playing in the mud and helping Mum build stuff.”

Family is paramount for Rachel. “Knowing they’re always there for me and I’m always there for them is what makes me happy.”

What does Rachel look forward to? “Watching Zack grow up and discovering the person he’s going to grow into. I think that’s going to be an amazing experience. In the shorter term, owning my own house is the big one.”

Telstra Super Annual Report 2009/2010

49

About Us

“Out here it’s so quiet and peaceful. Once I stood on the verandah and yelled out at the top of my lungs – just to make noise and have fun. It felt great to let loose, knowing I wasn’t going to upset the neighbours!”

– Rachel Wade

50

Connecting Australia for twenty years

What does Telstra Super Pty Ltd do?

Telstra Super Pty Ltd is the trustee of Telstra Super. The purpose of Telstra Super Pty Ltd is to ensure Telstra Super continues to provide appropriate superannuation benefits to members and their dependants. Telstra Super Pty Ltd has a Board of Directors responsible for the management of Telstra Super.

Telstra Super’s Board of Directors The Board of Directors has the responsibility of ensuring that Telstra Super is administered in accordance with the rules of the fund and all legal requirements. The Board of Directors has an equal number of member and employer representatives. In addition, the Board has chosen to appoint an independent Chairman. Telstra Super’s Board of Directors for the 2009/2010 financial year is set out below.

Independent Chairman Clive Batrouney (resigned 30/06/2010) Employer Directors

Member Directors

Carmel Mulhern

Grant Belchamber

Jan Price

Robert Belzer (resigned 30/11/2009)

John Stanhope

Ian McCarthy

Steve Grimaldi

Gerry Kandelaars John Jamieson (appointed 24/02/2010)

The Trustee has determined that a Member Director can only be appointed following their nomination in writing by the Australian Council of Trade Unions. All Employer Directors are appointed after being nominated in writing by Telstra Corporation Limited. The Independent Chairman can only be chosen, removed or have the terms of his/her appointment changed by resolution of the Directors.

Telstra Super Pty Ltd has taken out indemnity and fidelity insurance to cover Telstra Super against the financial effects of any wrongful acts that may be made by Telstra Super Pty Ltd’s directors, senior managers and employees while administering Telstra Super.

Telstra Super Annual Report 2009/2010

51

Financial Statements

Contents

Trustee Statement

54

Independent Audit Report

55

Statement of Change in Net Assets

56

Statement of Net Assets

57

Notes to the Financial Statements

52

58-77

Summary of Actuarial Report

78

Important Information

80

Connecting Australia for twenty years

Zack Wade, 10 months, Rachel’s son Clare Valley, South Australia Future Telstra Super member

Telstra Super Annual Report 2009/2010

53

Trustee’s Statement

IN THE OPINION OF THE DIRECTORS OF TELSTRA SUPER PTY LTD (ACN 007 422 522), TRUSTEE OF THE TELSTRA SUPERANNUATION SCHEME (TELSTRA SUPER): (a) the Financial Statements set out on pages 56 to 77 are properly drawn up so as to present fairly:

(i) the Net Assets of Telstra Super as at 30 June 2010, and

(ii) the Change in Net Assets for the year ended on that date,

in accordance with Australian Accounting Standards and other mandatory professional reporting requirements; and (b) the operation of Telstra Super has been carried out in accordance with its Trust Deed dated 1 July 1990 (as amended) and the requirements of the Superannuation Industry (Supervision) Act 1993 and Regulations and the Corporations Act 2001 and Regulations and Guidelines during the year.

This statement is made in accordance with a resolution of the Board of Directors and is signed for and on behalf of the Directors by:

Jan Price, Director

David Leggo, Director

Dated at Melbourne, this 27th day of July 2010.

54

Connecting Australia for twenty years

Independent Audit Report

TELSTRA SUPERANNUATION SCHEME (ABN 85 502 108833) INDEPENDENT REPORT BY THE APPROVED AUDITOR TO THE TRUSTEE AND MEMBERS Financial statements I have audited the financial statements of Telstra Superannuation Scheme for the year ended 30 June 2010 comprising the statement of net assets, statement of changes in net assets, summary of significant accounting policies, other explanatory notes and the Trustee statement.

Trustee’s Responsibility for the Financial Statements The superannuation entity’s trustee is responsible for the preparation and fair presentation of the financial statements in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the requirements of the SIS Act and the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations). The trustee’s responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error, and making accounting estimates that are reasonable in the circumstances.

Auditor’s Responsibility My responsibility is to express an opinion on the financial statements based on my audit. I have conducted an independent audit of the financial statements in order to express an opinion on them to the trustee and members of Telstra Superannuation Scheme.

My audit has been conducted in accordance with Australian Auditing Standards. These Auditing Standards require that I comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the trustee’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the trustee’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the trustee, as well as evaluating the overall presentation of the financial statements.

I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.

Auditor’s Opinion In my opinion the financial statements present fairly, in all material respects, in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations), the net assets of Telstra Superannuation Scheme as at 30 June 2010 and the changes in net assets for the year ended 30 June 2010.

ERNST & YOUNG

D J Thorn Partner Melbourne Dated 27th of July 2010.

Telstra Super Annual Report 2009/2010

55

Statement of Changes in Net Assets For the year ended 30 June 2010

Notes Investment Revenue

2010 $’000

2009 $’000

2(p)

Interest Dividends & Distributions

47,200

56,322

292,502

233,115

Property Income

41,129

64,862

Other Investment Income

3,941

6,267

623,243

(1,663,356)

1,008,015

(1,302,790)

Employer Contributions

547,102

371,433

Member Contributions

123,621

113,536

Changes in Net Market Value

14

Contribution Revenue

3, 8(a)

Transfers from other Funds

161,366

132,985

832,089

617,954

8,462

7,287

Other Revenue Group Life Insurance Proceeds Group Life Profit Share Rebate Other Income Total Revenue

0

8,080

1,387

1,712

9,849

17,079

1,849,953

(667,757)

434,398

446,460

42,224

35,680

32,296

28,673

18,030

15,576

Less: Benefits Paid Investment Expenses Administration Expenses

17

Group Life Insurance Premiums Superannuation Contributions Surcharge Total Expenses 15

Change in Net Assets After Income Tax

(160,162)

(1,194,251) 135,644

1,162,772

(1,058,607)

Net Assets Available At The Beginning Of The Year

9,030,568

10,089,175

Net Assets Available At The End Of The Year

10,193,340

9,030,568

30,250

30,250

10,163,090

9,000,318

Less Reserves

3, 5

Net Assets Available To Pay Benefits The accompanying notes form an integral part of the financial statements.

56

105 526,494

1,322,934

Change in Net Assets Before Income Tax Income Tax Benefit/(Expense)

71 527,019

Connecting Australia for twenty years

Statement of Net Assets

For the year ended 30 June 2010 Notes

2010 $’000

2009 $’000

Assets Cash at Bank

6,935

15,954

Receivables

10

41,896

32,430

Investments

13

10,187,592

9,102,553

Deferred Income Tax Assets

15

119,305

153,841

Property, Plant and Equipment

11

1,362

819

10,357,090

9,305,597

240

1,033

Total Assets Liabilities Benefits Payable Accounts Payable

18

31,415

17,849

Derivative Liabilities

13

60,633

239,964

Current Income Tax Liabilities

15

71,462

16,183

163,750

275,029

10,193,340

9,030,568

30,250

30,250

10,163,090

9,000,318

Total Liabilities Net Assets Less Reserves

3, 5

Net Assets available to pay benefits The accompanying notes form an integral part of the financial statements.

Telstra Super Annual Report 2009/2010

57

Notes to the Financial Statements For the year ended 30 June 2010 1 Operation of the Scheme Telstra Super was established by a Trust Deed dated 1 July 1990 to provide benefits for the employees of Telstra Corporation Limited (Telstra) and its related companies. The Deed has been amended from time to time. Telstra Super is a hybrid fund with both defined benefit and accumulation divisions. The defined benefit sections are closed to new members.

Benefits of members in the defined benefit divisions are calculated by way of formulae as defined in the Trust Deed. Benefits of members in the accumulation divisions are equal to the members’ account balance which is credited or debited each year with contributions, net investment income, expenses and income taxes.

The Trustee of the Scheme is Telstra Super Pty Ltd and it is the holder of a Registrable Superannuation Entity Licence (Public offer - Licence no L0001311). The Trustee elected for Telstra Super to become a Regulated Fund in accordance with the SIS Act with effect from 1 July 1994. In accordance with the requirements of the SIS Act, Telstra Super was registered as a Registrable Superannuation Entity on 3 April 2006 (registration no.

R1004441). This licence was revised to public offer class on 9 September 2006.

2 Summary of significant accounting policies The significant accounting policies which have been adopted in the preparation of these Financial Statements are: (a) Compliance with Australian Accounting Standards, the Trust Deed and legislative requirements The Financial Statements are general purpose statements which have been drawn up in accordance with Australian Accounting Standards including AAS 25 “Financial Reporting by Superannuation Plans” (AAS25), the Superannuation Industry (Supervision) Act 1993 and Regulations (the SIS Act) and the provisions of the Trust Deed.

The Financial Statements were authorised for issue by the Board of Directors of the Trustee on 27 July 2010.

The Financial Statements are presented in Australian dollars, which is the functional currency of Telstra Super.

Amounts have been rounded to the nearest thousand dollars except where otherwise noted.

International Financial Reporting Standards (IFRSs) form the basis of Australian Accounting Standards, being Australian equivalents of International Financial Reporting Standards (AIFRS). Since AAS25 is the principal standard that applies to the Financial Statements, other standards, including AIFRS, are also applied where necessary except to the extent that they differ from AAS25.

The following standards and amendments to standards have recently been issued or amended but are not yet effective. They do not require any changes to accounting policy and therefore are not expected to have any financial impact on the Financial Statements. They will however have some impact on disclosures: • AASB 2009-5 makes amendments to AASB 5,8,101,107,117,118,136 & 139 regarding the Annual Improvements Project.

• AASB 2009-11 makes amendments to AASB 9 regarding accounting for financial assets.

• AASB 2009-12 makes editorial amendments to a range of Australian Accounting Standards.

(b) Cash and Cash Equivalents Cash comprises cash on hand and on demand deposits. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. (c) Investments and Derivatives Investments and derivatives of Telstra Super are initially recognised at cost, being the fair value of the consideration given. After such initial recognition, investments and derivatives are measured at net market value as at balance date and movements in the net market value of these assets are recognised in the Statement of Changes in Net Assets in the period in which they occur.

Net market values of investments and derivatives have been determined as follows: • shares in listed entities and fixed interest securities at last sale price quoted by the Stock Exchange at close of • business on the balance date; • interests in pooled investment vehicles at the redemption price as quoted by the investment manager; • i nterests in unlisted trusts and collective investment schemes at the most recent valuation obtained from the managers adjusted for subsequent calls and redemptions and any significant changes in underlying values; • derivative financial instruments at market rates at close of business on the balance date.

58

Connecting Australia for twenty years

Notes to the Financial Statements 2 Summary of significant accounting policies

continued

Estimated costs of realisation have been deducted in determining net market value. Net market value is considered a reasonable approximation of fair value.

Investments are held for the long term purpose of providing benefits to members on their retirement, death, or termination of employment. Due to the long-term objective of superannuation investments the amount recoverable through sale within twelve months cannot be determined. (d) Significant Accounting Judgements, Estimates and Assumptions The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates, and their underlying assumptions are reviewed on an ongoing basis.

The amount of accrued benefits has been actuarially determined based on certain estimates and assumptions. The key assumptions are discussed in note 4. (e) Receivables and Other Payables Receivables are carried at nominal amounts due which approximate net market value. Receivables are normally settled within 30 days. An allowance for uncollectible amounts is only made where there is objective evidence that the debt will not be collected.

Other payables are recognised for amounts to be paid in the future for goods and services received, whether or not billed to Telstra Super and are carried at nominal amounts which approximate net market value.

Payables are normally settled within 30 days. (f) Property, Plant and Equipment Items of property, plant and equipment are either owned or leased under an operating lease. Owned items are recorded at cost and depreciated over their estimated useful lives to Telstra Super.

2010

2009

Computer Software, Development and Equipment

20% - 40%

20% - 40%

Office Furniture and Equipment

1.8% - 30%

1.8% - 30%

Leasehold Improvements

7.5% - 20%

7.5% - 20%

Depreciation rates for major categories are:

Depreciation is calculated on a straight line basis over the estimated useful life of the assets. The assets’ residual values, useful life and amortisation methods are reviewed, and adjusted if appropriate, each financial year. An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal. Any gain or loss from derecognition is included in the Statement of Changes in Net Assets in the year the asset is derecognised.

Operating leases are not capitalised and rental payments are charged to the Statement of Changes in Net Assets in the period in which they are incurred. (g) Foreign Currency Both the functional and presentation currency of Telstra Super is Australian dollars ($).

Foreign currency transactions are initially translated into Australian currency at the rate of exchange at the date of the transaction. At balance date monetary assets and liabilities denominated in foreign currencies are translated to Australian currency at rates of exchange current at that date. Resulting currency translation differences are brought to account in determining the Change in Net Market Value of Investments for the year. (h) Benefits Payable Benefits payable comprises the entitlements of members who ceased employment prior to the year end but had not been paid their benefit at that time. Benefits payable are normally settled within 30 days. (i) Administration Expenses All administration expenses are paid directly by Telstra Super. Administration expenses are recognised in the period in which the expenditure is incurred. (j) Income Tax Income tax expense for the year comprises current and deferred tax and is recognised in the Statement of Changes in Net Assets. Current income tax liability is the expected tax payable on the taxable income for the year less any instalment payments which have been paid as at balance date.

Telstra Super Annual Report 2009/2010

59

Notes to the Financial Statements 2 Summary of significant accounting policies continued Deferred tax assets and liabilities are provided for using the balance sheet liability method, providing for temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent it is no longer probable that the related tax benefit will be realised. Currently deferred tax assets represent approximately 1.2% of net assets and are recognised at tax rates of 15% for revenue account losses and 13% for capital losses. Based on the Actuary’s 7.5% assumed rate of net investment return, such deferred tax will be recouped within 3 years.

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 the tax rates that have been enacted or substantively enacted at balance date.

Deferred tax assets and liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxation authority.

Legislation is in place which changes the tax treatment of some financial arrangements applicable to the Fund for the year beginning 1 July 2010. The Taxation of Financial Arrangements (TOFA) legislation will calculate income on interest bearing financial arrangements on an accruals basis rather than on a ‘due and receivable’ basis. Based on the work preformed to date, no material impact is expected to the Fund’s taxation position.

Telstra Super is a Regulated Superannuation Scheme under the Superannuation Industry (Supervision) Act 1993 (the SIS Act) and accordingly is entitled to the concessional income tax rate of 15%. (k) Superannuation Contributions Surcharge Tax The liability in respect of the Superannuation Contributions Surcharge Tax on surchargeable contributions received prior to year end is recognised once it can be reliably measured. Measurement is based on receipt of an assessment from the Australian Taxation Office. The cost of the surcharge is charged to the relevant members’ accounts.

The Superannuation Contributions Surcharge Tax was abolished with effect from 1 July 2005 by the passing of the Superannuation Laws Amendment (Abolition of Surcharge) Act 2005. Assessments for surcharge in respect of contributions and payments for the year ended 30 June 2005 and prior years will continue to be issued and remain payable. (l) Goods and Services Tax (GST) Where applicable, GST incurred by Telstra Super that is not recoverable from the Australian Taxation Office (ATO), has been recognised as part of the expense to which it applies. Receivables and payables are stated with any applicable GST included in the value. The amount of any GST recoverable from, or payable to, the ATO is included as a receivable or payable in the Statement of Net Assets. (m) Excess Contributions Tax The ATO may issue release authorities to members of Telstra Super relating to excess contributions tax that is payable in respect of the member’s concessional and/or non-concessional contributions for a particular year.

Where a member receives a release authority in regard to concessional contributions, the member may give the release authority to Telstra Super for payment. Where a member receives a release authority in regard to non-concessional contributions, the member must give the release authority to Telstra Super for payment.

The liability for the excess contribution tax is recognised when the relevant release authorities are received from members, as the Trustee considers this is when it can be reliably measured. The liability will then be charged to the relevant members’ accounts. (n) No-TFN Contributions Tax Where a member does not provide their tax file number, Telstra Super may be required to pay No-TFN contributions tax at a rate of 31.5% on any concessional contributions received. This is in addition to the standard 15% rate.

The liability for the No-TFN contributions tax is recognised when charged to the relevant members’ accounts.

Where a member subsequently provides their tax file number, a tax offset will be included in the relevant members’ accounts. (o) Derecognition of Financial Assets and Financial Liabilities A financial asset is derecognised when the right to receive cash flows from the asset has expired or substantially all the risks and rewards of ownership of the asset have been transferred to another party.

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

60

Connecting Australia for twenty years

Notes to the Financial Statements 2 Summary of significant accounting policies

continued

(p) 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: Changes in Net Market Values. Calculated as the difference between the Net Market Value at year end or consideration received (if sold during the year) and net market value as at the prior year end or cost (if the investment was acquired during the period).

Contributions and Transfers In. Recognised in the period in which the control and the benefit of the revenue has been attained and are recorded gross of any tax.

Interest. When control of a right to receive consideration for the provision of, or investment in, assets has been attained.

Group Life Insurance Proceeds. Insurance claim amounts are recognised where the insurer has agreed to pay the claim lodged and has transferred the claim amount to Telstra Super.

Dividends, Distributions, and Property Income. When the right to receive payment is established. (q) Liability for Accrued Benefits The liability for accrued benefits is actuarially measured on at least a triennial basis and represents the value of Telstra Super’s present obligation to pay benefits to members and other beneficiaries at the date of measurement. The liability is determined as the present value of expected future benefit payments which arise from membership of Telstra Super up to the reporting date. The present value is reported in the notes and is determined in accordance with Guidance Note 454 issued by the Institute of Actuaries of Australia. (r) Employee Entitlements Salaries, Annual Leave and Sick Leave Liabilities for salaries (including non-monetary benefits) and annual leave are recognised in the provisions for employee entitlements and are represented by the amount which Telstra Super has a present obligation to pay at balance date. The provisions have been calculated based on remuneration rates that Telstra Super expects to pay when the employee entitlement is settled. Related on-costs are included. No liability for sick leave has been recognised as it is non- vesting and no additional cost is incurred by staff absence. Sick leave is recognised when the leave is taken and is measured at the rates paid or payable.

Long Service Leave The liability for long service leave is recognised in the provision for employee entitlements and is measured as the present value of the estimated future cash outflows to be made by Telstra Super at balance date. Liabilities for employee entitlements which are not expected to be settled within twelve months are discounted using the rates attached to national government securities at balance date, which most closely match the terms of maturity of the related liabilities.

In determining the liability for employee entitlements, consideration has been given to future increases in salary rates, Telstra Super’s experience with staff departures, and the probability that employees as a group will achieve an unconditional qualifying period of service. Related on-costs have also been included in the liability.

Superannuation Scheme The employees of Telstra Super are eligible to be members of Telstra Super, and contributions are made on their behalf. The majority of staff are accumulation members, and contributions for these staff are charged as expenses as the contributions are paid or become payable. Contributions for staff who are defined benefit members, are also charged as expenses when due and payable. The Trustee has no obligation or entitlement to any deficit/surplus and therefore AASB 119 has not been applied. Refer to Note 16 (b) for details of the defined benefit surplus/(deficit).

Telstra Super Annual Report 2009/2010

61

Notes to the Financial Statements 3 Funding arrangements Funding requirements for the Fund are impacted by various financial and demographic factors including investment earnings, salary inflation, and benefit claims experience. The funding arrangements are therefore primarily dependent upon investment performance relative to salary growth. The Fund has a current Funding and Solvency Certificate.

The funding policy adopted in respect of the Defined Benefit divisions is directed at ensuring that benefits accruing to members and beneficiaries are fully funded as the benefits fall due. An actuarial investigation is carried out every three years. As at 30 June 2009, the Actuary for the Scheme, Mr. K. O’Sullivan FIAA completed an actuarial investigation of the Defined Benefit divisions of Telstra Super and reported that Telstra Super was in an unsatisfactory funding position. Under the SIS legislation, a fund is in an “Unsatisfactory Financial Position” when vested benefits exceed the market value of assets.

As per the recommendation contained in the Actuary’s report as at 30 June 2009, Telstra Corporation Limited (Telstra) and certain associated employer sponsors have continued to make employer contributions to Telstra Super in respect of Defined Benefit and Accumulation divisions of the Scheme.

In accordance with an agreement (Funding Deed) entered into by the Trustee with Telstra, contributions to Telstra Super are made by Telstra under the Funding Deed that reflect Telstra’s commitment to maintain the Defined Benefit divisions assets at a specified level. The Funding Deed provides that Telstra’s contributions to Telstra Super may cease when the Vested Benefit Index (VBI) - the ratio of fund assets to members’ vested benefits of the Defined Benefit divisions of Telstra Super rises above 103% on monthly average over a calendar quarter. Contributions in accordance with the Funding Deed are currently at a rate of 9% for accumulation members and 27% for defined benefit members. These rates have been effective from 10 June 2009. The monthly average VBI for the Defined Benefits divisions for the 30 June 2010 quarter was 86% (2009: 82%).

The Actuary is satisfied that contribution rates in accordance with the Funding Deed will restore Telstra Super to a VBI of above 100% in a reasonable timeframe.Telstra Super self insures for certain entitlements associated with certain death and disability benefits offered under the membership rules. The Trustee periodically assesses the funding needs associated with this arrangement and the Actuary makes allowance for this factor in evaluating the financial status of Telstra Super. The Trustee has established the following reserves from surplus, as disclosed in Note 5. The Trustee has allocated the amounts of $25 million and $250,000 respectively for the purpose of maintaining self insurance and licensing reserves as required by the Trustee’s RSE licence. The Trustee has also allocated the amount of $5 million for the purpose of maintaining an administration reserve.

4 Liability for accrued benefits The valuation of accrued benefits is undertaken by the Actuary on a triennial basis in accordance with the Australian Accounting Standard AAS25, Financial Reporting by Superannuation Plans. The last triennial valuation of $9,129.9 million was as at 30 June 2009 and a summary of that report is attached to these statements. Updates are provided annually by the Actuary, and valuations for 30 June 2010 and 2009 are shown below.

Liability for Accrued Benefits at 30 June

2010 $’000

2009 $’000

10,153,300

9,129,900

The main assumptions used to determine the actuarial value of accrued benefits at the last review date were: • The future rate of net investment return on the Scheme’s assets would be 7.5%.

• The future rate of salary inflation would be 4.5%.

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Connecting Australia for twenty years

Notes to the Financial Statements 5 Vested benefits Vested Benefits are benefits which are not conditional upon continued membership of Telstra Super and include benefits which members were entitled to receive had they terminated their membership at balance date. Refer to Note 3 for details of the funding arrangements with Telstra.

Accumulation members’ vested benefits are fully funded and any surplus/(deficit) relates to the vested benefits in the Defined Benefit divisions.

2010 $’000

2009 $’000

Net Assets Available as at 30 June

10,193,340

9,030,568

Vested Benefits as at 30 June

10,574,497

9,579,485

25,000

25,000

5,000

5,000

250

250

Allocation to Insurance Reserve Allocation to Administration Reserve Allocation to Licensing Reserve Surplus/(Deficit) as at 30 June

(411,407)

(579,167)

6 Guaranteed benefits No guarantees have been made in respect of any part of the liability for accrued benefits.

7 Auditor’s remuneration 2010 $’000

2009 $’000

243

180

58

8

301

188

Amounts received, or due and receivable, by the auditor for: Auditing the Financial Statements Other Services

8 Related parties (a) Employer Company Telstra Corporation is the principal employer, and Reach Services Australia Ltd, Sensis Pty Ltd, 3GIS Pty Ltd, Foxtel Pty Ltd, Telstra Super Financial Planning Pty Ltd, and Telstra Super Pty Ltd (as trustee for Telstra Super) are associated employer sponsors. Of total employer contributions of $547.1m as disclosed in the Statement of Changes in Net Assets, those made by Telstra and associated employers totalled $346m (2009: $196.1m). Contributions are made in accordance with the recommendations of the Actuary, the Trust Deed, the Funding Deed, and relevant legislative requirements. Telstra Corporation also provides Telstra Super with telecommunication services. Such services are provided at arm’s length and on normal commercial terms.

Telstra Super held the following investments in Telstra Corporation at market value as at 30 June.

2010 $

2009 $

Shares

111,980,746

78,195,754

Bonds

5,243,850

0

Dividends received for the year

7,826,538

6,688,527

362,500

254,751

Interest received for the year

(b) Trustee and Key Management Personnel Telstra Super Pty Ltd (TSPL) is the trustee of Telstra Super and is the holder of a Registrable Superannuation Entity Licence (Public offer - Licence no L0001311).

Telstra Super Annual Report 2009/2010

63

Notes to the Financial Statements 8 Related parties

continued

The following people were Directors of TSPL during the financial year: Mr Clive Batrouney (Chairman - resigned 30 June 2010)

Mr Gerry Kandelaars

Mr Grant Belchamber

Mr Ian McCarthy

Mr Robert Belzer (resigned 30 November 2009)

Ms Carmel Mulhern

Mr Stephen Grimaldi (appointed 22 July 2009)

Ms Jan Price

Mr John Jamieson (appointed 24 February 2010)

Mr John Stanhope

Each Director or their alternate attended the following meetings and Board Committees during the year as a member of the Board or relevant Committee.

Board

Name

Committees Claims Review

Held 11

Attended 11

G Belchamber (2)

11

11

R Belzer

C Batrouney (1)

11

6

(4)

11

8

J Jamieson (5)

11

2

G Kandelaars

11

10

I McCarthy (6)

11

11

(3)

S Grimaldi

C Mulhern

11

8

J Price

11

11

J Stanhope

11

9

Held

Attended

3

3

3

3

Audit , Risk & Compliance Held 5

Attended 5

5

5

5

3

5

2

5 5

1

C Davis

2

3

2

2

B Gokhale (9)

(1) Resigned as a Director 30/6/10. Mr David Leggo was appointed as replacement chairman effective 1/7/10.

(2) Ceased as Alternate for R Belzer 30/11/09 (3) Resigned as a Director 30/11/09 (4) Appointed Director 22/07/09

Held 5

Attended 5

5

5

5

4 1

3 1

S Keogh (7) (8)

Remuneration

1 4

4

(5) Appointed Director 24/02/10 (6) Alternate for G Kandelaars at Board Mtg held 2/2/10 (7) Alternate for S Grimaldi (8) Alternate for J Stanhope and J Price (9) Alternate for C Mulhern

(b) Trustee and Key Management Personnel (cont) Other key management personnel who have had authority for planning, directing and controlling the activities of Telstra Super during the financial year were as follows: Mr Jim Christensen (Chief Investment Officer) - commenced 25 January 2010 Mr Martin Crowe (Chief Executive) Mr Stephen Merlicek (Chief Investment Officer) - resigned 30 September 2009 Ms Christina Liosis (Chief Financial Officer) (c) Compensation of the Trustee and Key Management Personnel

Short Term - salaries, fees, bonuses and non monetary benefits Superannuation Contributions Other Long Term Benefits Termination Benefits

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Connecting Australia for twenty years

2010 $’000

2009 $’000

1,546

1,535

175

310

185

370

1,121

0

3,027

2,215

Notes to the Financial Statements 8 Related parties

continued

Where instructed, a Director’s income is paid direct to their employer. Directors remuneration excludes insurance premiums of $161,690 (2009: $155,022) paid by Telstra Super in respect of Directors’ and Officers’ liability insurance contracts as the contracts do not specify premiums paid in respect of individual Directors and Officers.

The table shown below lists the number of Directors and Key Management Personnel whose income falls within the following bands for financial years ending 30 June.

Amounts falling between …

2010

2009

$10,000 and $19,999

3

0

$30,000 and $39,999

1

0

$40,000 and $49,999

6

8

$90,000 and $99,999

0

1

$100,000 and $109,999

1

0

$110,000 and $119,999

0

1

$180,000 and $189,999

1

0

$310,000 and $319,999

1

0

$450,000 and $459,999

0

1

$640,000 and $649,999

1

0

$700,000 and $709,999

0

1

$1,650,000 and $1,659,999

1

0

(d) Fees and Reimbursements As a result of Telstra Super directly incurring all expenditure, there were no fees or reimbursements paid to the Trustee company, TSPL. (e) Membership of Telstra Super Certain Directors and key management personnel are members of Telstra Super. Their membership terms and conditions are identical to other members of Telstra Super. (f) Related Investment (i) Telstra Super Financial Planning Pty Ltd (TSFP) is an investment wholly owned by Telstra Super Pty Ltd as Trustee for Telstra Super. The principal activity of the company during the course of the financial year was to provide financial planning advice to members of Telstra Super. Telstra Super held the following investment in TSFP at net asset value as at 30 June.

Shares

2010 $

2009 $

3,576,070

2,276,777

No dividends have been declared or paid. Consolidated accounts have not been prepared as Telstra Super’s investment in TSFP is not material.

The following Directors or Officers of TSPL were also Directors of TSFP during the financial year: Mr Clive Batrouney (resigned 30/6/2010) Mr Robert Belzer (1/7/2009 to 30/11/2009)

Mr Martin Crowe Mr Ian McCarthy (12/4/10 to 30/6/10)

(ii) Fees and Reimbursements TSFP is responsible for direct expenditure incurred. Shared costs with Telstra Super are allocated on a fair and equitable basis. Transactions between the parties comprised of fees charged by TSFP to Telstra Super for providing financial advice to members $11,949,981 (2009: $9,609,647) and fees charged

by Telstra Super to TSFP for in-house administration support and services provided in regard to TSFP Investment Products $600,937 (2009: $605,455). The TSFP fee for providing financial advice to members is based on funds under advice. The fee rate was 0.2% for the entire financial year, and will decrease to 0.175% from 1 July 2010. At 30 June 2010 TSFP had receivables from Telstra Super of $1,040,508 (2009: $868,646), and Telstra Super had no receivables from TSFP (2009: $nil).

Telstra Super Annual Report 2009/2010

65

Notes to the Financial Statements 9 Segment information Telstra Super operates solely to provide superannuation benefits to members and beneficiaries and operates in Australia only. Revenue is derived from investments and contributions.

10 Receivables Investment Income Receivable Contributions Receivable

2010 $’000

2009 $’000

32,080

24,229

8,490

7,069

Other Receivables

974

697

Prepayments

352

435

41,896

32,430

2010 $’000

2009 $’000

Office Equipment, Furniture and Fittings at Cost

4,019

3,248

Less Accumulated Depreciation

2,657

2,429

Total Property, Plant and Equipment

1,362

819

Operating leases of plant, property and equipment, not provided for in the accounts, and payable:

2010 $’000

2009 $’000

Not later than one year

1,670

1,613

Later than one year and not later than five years

5,126

4,859

740

1,820

7,536

8,292

1,655

1,864

Total Receivables

11 Property, plant and equipment (Refer Note 2(f))

12 Lease commitments

(Refer Note 2(f))

Later than five years Operating lease expenses recognised for the year

There are no restrictions imposed on Telstra Super in regard to finance and operating leases. There are also no renewal, purchase or escalation option clauses in the leasing arrangements.

66

Connecting Australia for twenty years

Notes to the Financial Statements 13 Investments The investments and derivatives of the Scheme are managed on behalf of the Trustee by selected investment managers and by staff employed by the Trustee. The Custodian holding the investments is National Australia Bank Limited.

Investment assets and derivative assets comprise: Short Term Money Market Australian Fixed Interest Securities International Fixed Interest Securities

2010 $’000

2009 $’000

83,267

175,014

2,301,978

2,172,562

430,600

425,082

Australian Equities

2,903,562

2,105,335

International Equities

2,283,852

1,884,492

703,215

570,373

Property

1,167,929

1,068,775

Infrastructure

298,902

272,748

Private Equity

Futures

5,705

1,024

Options and Foreign Exchange Contracts

8,582

427,148

10,187,592

9,102,553

Total Investments and derivative assets Derivative liabilities comprise: Futures

(26,365)

(4,920)

Options and Foreign Exchange Contracts

(34,268)

(235,044)

(60,633)

(239,964)

Total derivative liabilities

Telstra Super’s financial assets, liabilities and derivative instruments are included in the Statement of Net Assets at Net Market Values and these values approximate Net Fair Value.

14 Changes in net market value of investments

2010 $’000

2009 $’000

3,721

1,177

13,824

(2,340)

(i) Investments Held at Balance Date Short Term Money Market Australian Fixed Interest Securities International Fixed Interest Securities

1,667

1,523

Australian Equities

33,121

(228,220) (139,284)

International Equities

52,581

Private Equity

15,984

(73,371)

Property

(3,852)

(397,116)

6,452

(22,324)

Infrastructure Futures Options and Foreign Exchange Contracts

(22,925)

(3,871)

(27)

(8,905)

100,546

(872,731)

(ii) Investment Realised During the Year Short Term Money Market

676

(90)

Australian Fixed Interest Securities

51,818

50,139

International Fixed Interest Securities

33,713

(21,495)

138,986

(359,724)

51,578

(264,267)

Australian Equities International Equities Private Equity Property Infrastructure Futures Options and Foreign Exchange Contracts

Total Changes in Net Market Value

136,235

9,949

26,634

(76,973)

2,817

(12,652)

791 79,449

900 (116,412)

522,697

(790,625)

623,243

(1,663,356)

Telstra Super Annual Report 2009/2010

67

Notes to the Financial Statements 15 Income Tax The major components of income tax expense for the years ended 30 June 2010 and 2009 are: 2010 $’000

2009 $’000

Current income tax expense Income tax payable current year Adjustments in respect of prior years

126,955

47,315

(1,330) 125,625

(5,700) 41,615

34,941

(170,709)

(404)

(6,550)

34,537 160,162

(177,259) (135,644)

1,322,934

(1,194,251)

198,440

(179,138)

Deferred income tax expense Relating to origination and reversal of temporary differences Adjustments in respect of deferred income tax of previous years Income tax expense reported in Statement of Changes in Net Assets A reconciliation between prima facie income tax expense and income tax expense as reported in the Change in Net Assets before Income Tax is as follows: Changes in Net Assets before Income Tax Prima facie income tax expense at the tax rate of 15% Increase in income tax expense due to: Benefits Paid Superannuation Contributions Surcharge Imputation & Foreign Tax Offsets Gross Up Differences Between Tax and Accounting Investment Income Other Items Decrease in income tax expense due to: Non-Assessable Contributions and Transfers from other Funds Group Life Proceeds, Notional Insurance and Anti-Detriment Adjustments in respect of Current Income Tax of previous years Allocated Pension Exempt Income Imputation & Foreign Tax Offsets Income tax expense reported in Statement of Changes in Net Assets

65,160

66,969

11

16

5,948

6,503

(14,379)

63,000

12

9

(41,829)

(35,677)

(2,351)

(2,203)

(1,734)

(12,250)

(10,791)

(5,175)

(38,325) 160,162

(37,698) (135,644)

Current Income Tax Liability at 30 June relates to the following: Income tax payable current year

126,955

47,315

Less payments made during the year

(55,437)

(31,132)

Less refunds due regarding amended returns Deferred Income Tax Assets and Liabilities at 30 June relates to the following: Contributions receivable Investment income receivable Realised and Unrealised losses on investments Expense provisions Less Allocated Pension Exempt Income Net Deferred Income Tax (Assets)/Liabilities

68

Connecting Australia for twenty years

(56)

0

71,462

16,183

1,250

1,039

2,412

1,974

(139,154)

(175,036)

(389)

(365)

16,575 (119,305)

18,547 (153,841)

Notes to the Financial Statements 16 Employee Entitlements

(refer note 2(r))

2010 $’000

2009 $’000

1,587

1,741

(a) Aggregate employee leave entitlements, including on-costs Current Non Current

237

314

1,824

2,055

Employees of Telstra Super are entitled to long service leave after ten years of service, and pro-rata payment on termination after seven years service. The present values of employee entitlements not expected to be settled within twelve months of balance date have been calculated using the following weighted averages: Assumed rate of increase in wage and salary rates

4.98%

Discount rate

4.59%

(b) Superannuation Scheme There are 8 employees of Telstra Super who are Defined Benefit members of Telstra Super. Their share, on a pro-rata basis, of the assets (at net market value), the accrued benefits, and the vested benefits are as follows: 2010 $’000

2009 $’000

Proportionate share of Telstra Super assets at 30 June

1,302

2,612

Accrued benefits at 30 June

1,298

2,541

Excess of fund assets over accrued benefits Vested benefits

4

71

1,530

3,296

An actuarially determined surplus or deficit in relation to these employees has not been recognised in the financial statements as the Trustee has elected not to adopt AASB 119.

During the year, employer contributions of $1,166,210 were paid/payable to the Scheme in respect of employees (2009: $1,062,111).

17 Administration Expenses Salaries and related employment costs Directors Fees Professional and Audit Fees

2010 $’000

2009 $’000

11,901

11,665

425

411

1,979

1,170

Member Communication Expenses

1,635

1,713

Office Rental and Expenses

3,732

3,377

Financial Planning Service Fees

11,950

9,610

674

727

32,296

28,673

2010 $’000

2009 $’000

10,766

6,450

Administration Expenses Payable

5,717

2,265

Employee Entitlements

1,828

2,051

Unallocated Funds

13,101

7,080

Other Expenses Total Administration Expenses

18 Accounts Payables Investment Expenses Payable

Other Payables Total Accounts Payables

3

3

31,415

17,849

Telstra Super Annual Report 2009/2010

69

Notes to the Financial Statements 19 Commitments and contingent liabilities As at 30 June 2010, Telstra Super had outstanding commitments of $374,495,448 (2009: $412,805,426). These commitments represent uncalled elements in respect of investments as well as contractual arrangements entered into with third parties. These commitments are spread over several years and the timing depends on the funding needs of the managers. Telstra Super also has bank guarantees in place totalling $678,964 (2009: $605,401). These guarantees cover rental and office fitouts.

20 Consolidations The accounting standard AASB 127: Consolidated and Separate Financial Statements, deals with the issue of whether entities owned and/or controlled by another entity should be consolidated into the financial statements of the holding entity. Control is presumed to exist when the holding entity owns more than half of the voting power of an entity unless it can be clearly demonstrated that such ownership does not constitute control.

Telstra Super has undertaken an exercise to establish whether any of its investments meet the above criteria.

Three investments were identified in which we hold more than half the shares/units and control could be presumed to exist. The entities and the ownership interest are as follows: Ownership Interest 2010 $’000

%

3,576

100.00

12,874

100.00

109,597

91.69

Telstra Super Financial Planning Pty Ltd LGI Absolute Return Fund Legg Mason Australian Small Companies Trust

Ownership Interest 2009 $’000

%

2,277

100.00

LGI Absolute Return Fund

13,389

100.00

Legg Mason Australian Small Companies Trust

70,645

87.11

Telstra Super Financial Planning Pty Ltd

We have not consolidated the above entities for the following reasons: • the investment in Telstra Super Financial Planning Pty Ltd is considered immaterial • t he investment in the LGI Absolute Return Fund is considered a passive investment as we are not involved in the management of the Fund. Telstra Super plans to terminate its holding by 30 September 2010. The effect of consolidating the entity on the financial statements is considered immaterial as the trust holds listed equities and is not geared; • t he investment in the Legg Mason Australian Small Companies Trust is also considered a passive investment as we are not involved in the management of the Trust. Telstra Super is currently changing the structure of this investment into a mandated portfolio. The effect of consolidating the entity on the financial statements is considered immaterial as the trust holds listed equities and is not geared.

21 Significant events after balance date Between 30 June 2010 and the date of approval of this financial report, there have been no matters or circumstances not otherwise dealt with in the financial report that have significantly affected or may significantly affect the Scheme.

70

Connecting Australia for twenty years

Notes to the Financial Statements 22 Financial instruments and risk management (a) Financial Risk Management Objectives, Policies, and Processes The Investments of Telstra Super are managed on behalf of the Trustee by appointed managers and the internal investment team. All investments of Telstra Super are held on behalf of the Trustee by National Asset Servicing (NAS) who acts as the global custodian. Each investment manager is required to invest the assets managed by it in accordance with the terms of a written mandate. The Trustee has determined that appointment of these managers is appropriate for the Scheme and is in accordance with the Scheme’s Investment Strategy. Telstra Super’s principal financial instruments, other than derivatives, comprise equity securities, fixed interest securities, interests in pooled investment vehicles, cash and short term deposits.

The main purpose of these financial instruments is to generate a return on investment. Telstra Super also has various other financial instruments such as receivables and payables, which arise directly from its operations.

Telstra Super uses derivative financial instruments to reduce risks in the share, bond and currency markets and to increase or decrease Telstra Super’s exposure to particular investment classes or markets in line with the re-balancing strategy and other investment strategies. Derivative financial instruments are included in the relevant asset category in the Statement of Net Assets, the relevant asset category listed in Note 13, and the accounting policies in relation to derivatives are set out in Note 2 (c).

The main risks arising from Telstra Super’s financial instruments are credit risk, liquidity risk, and market risk.

Market risk includes interest rate risk, equity price risk, and foreign currency risk. The Trustee reviews and agrees policies for managing each of these risks and they are summarised below. The Trustee also monitors the market price risk for all financial instruments.

The Trustee acknowledges that an integral part of its good governance practice is a sound and prudent risk management framework. This framework is documented in the Scheme’s Risk Management Plan and Strategy which is subject to regular review by management, the Trustee, and annual audits of risk and compliance. The Trustee manages this investment risk as part of its overall risk management framework.

The Trustee determines the asset allocation of the Scheme. The Trustee receives advice from its investment adviser in making its determination. The asset allocation is reviewed throughout the year in accordance with the Scheme’s Risk Management and Investment Policies. The Trustee has established an Investment Committee, which is responsible for approving and monitoring Investment Mandates within the limits outlined in the delegations. The Committee comprises of the Chair of the Trustee, management, two external consultants and the external investment advisor JANA. The Committee minutes record all decisions made and are presented to the Trustee for ratification or noting as appropriate.

The Investment Unit through its investment mandates is delegated responsibility for all day to day investment decisions for the Internally Managed Funds.

Telstra Super also undertakes extensive due diligence to ensure Fund Managers have the appropriate skills and expertise to manage the Scheme’s investments. In addition investment performance is tracked through appropriate monitoring of market conditions and benchmark analysis. (b) Credit Risk Credit risk represents the risk that the counterparty to the financial instrument will fail to discharge an obligation and cause the Scheme to incur a financial loss. Credit risk primarily arises from investments in debt securities and from trading derivative products. Other credit risk arises from cash and cash equivalents and amounts due from brokers. The Scheme invests in debt securities which carry credit risks. The Fund requires investment managers to manage the securities within approved credit limits as set out in their mandates.

Compliance of managers with their mandates is monitored by the Scheme’s custodian as well as the Trustee.

Telstra Super’s maximum exposure to credit risk is as indicated by the carrying amounts of its assets including derivatives. Telstra Super minimises credit risk by the diversity of investments, ensuring its assets are custodially held, and dealing through recognised exchanges and clearing houses. The Trustee also has a credit risk policy in place. Compliance with this policy is monitored on an ongoing basis.

There are no significant concentrations of credit risk within Telstra Super.

Credit quality per class of debt instruments The credit quality of financial assets is managed by Telstra Super using Standard & Poor’s rating categories, in accordance with the investment mandate of the Scheme, and is monitored on a regular basis in accordance with the credit risk policy. This review process allows the Trustee to assess the potential loss as a result of risks and take corrective action.

Telstra Super Annual Report 2009/2010

71

Notes to the Financial Statements 22 Financial Instruments and risk management

continued

The table below shows the credit quality by class of asset.

2010 Credit Quality

AAA to AA-

A+ to A- BBB+ to B- CCC+ to CC Non Rated

Total

$’000

$’000

$’000

$’000

$’000

$’000

Equities and Trusts

-

-

-

-

5,338,373

5,338,373

Investment Vehicles

-

-

-

-

2,336,228

2,336,228

Derivatives Assets

-

-

-

-

55,551

55,551

Cash and Deposits

-

-

-

-

377,480

377,480

Perpetual Securities

-

70

-

-

-

70

Fixed Interest Bonds

478,518

54,237

28,963

-

40,428

602,146

Indexed Bonds

140,459

44,729

31,272

668

3,722

220,850

76,411

2,673

7,342

1,545

15,704

103,675

-

1,174,887

-

-

17,521

1,192,408

Asset Backed Securities Discount Securities Other financial assets

2009 Credit Quality

-

-

-

-

130,309

130,309

695,388

1,276,596

67,577

2,213

8,315,316

10,357,090

AAA to AA-

A+ to A- BBB+ to B- CCC+ to CC Non Rated

Total

$’000

$’000

$’000

$’000

$’000

$’000

Equities and Trusts

-

-

-

-

4,263,980

4,263,980

Investment Vehicles

-

-

-

-

2,137,885

2,137,885

Derivatives Assets

-

-

-

-

435,124

435,124

Cash and Deposits

-

-

-

-

204,704

204,704

Perpetual Securities

-

76

-

-

-

76

Fixed Interest Bonds

227,197

88,331

42,840

-

15,889

374,257

Indexed Bonds

85,301

61,092

23,653

138

3,786

173,970

197,961

8,401

5,767

50

11,696

223,875

1,328,073

360

-

-

542

1,328,975

-

-

-

-

162,751

162,751

1,838,532

158,260

72,260

188

7,236,357

9,305,597

Asset Backed Securities Discount Securities Other financial assets

The carrying amounts of financial assets best represent the maximum credit risk exposure at the reporting date. No collateral is held as security or other credit enhancements exist for all financial assets held. No financial assets are considered past due as all payments are considered recoverable when contractually due.

The Scheme’s financial assets exposed to credit risk amounted to the following: 30-Jun-10 $’000 Cash and Cash equivalents Fixed Interest securities

90,202

190,968

2,732,578

2,597,644

Listed Australian equities

2,903,562

2,105,335

Listed International Equities

2,283,852

1,884,492

703,215

570,373

Property

1,167,929

1,068,775

Infrastructure

298,902

272,748

Derivatives

14,287

428,172

Interest, dividends and other receivables

32,080

24,229

8,490

7,069

1,326 10,236,423

1,132 9,150,937

Private Equity

Contributions receivable Other receivables and prepayments Total

72

30-Jun-09 $’000

Connecting Australia for twenty years

Notes to the Financial Statements 22 Financial instruments and risk management

continued

Substantially all of the Scheme’s cash is managed by BT Australia and Macquarie Bank. The Custodian, National Australia Bank, custodially hold assets and cash in the name of the Scheme. Bankruptcy or insolvency by these financial institutions may cause the Scheme’s rights with respect to the cash held to be delayed or limited. The Scheme monitors its credit risk by monitoring the credit quality and financial position of the banks through regular analysis of their financial reports. (c) Liquidity Risk Liquidity risk is the risk that Telstra Super will encounter difficultly in raising funds to meet commitments associated with financial instruments and benefit payments. To control these risks, Telstra Super invests in financial instruments, which under normal market conditions are readily convertible to cash. In addition, Telstra Super maintains sufficient cash and cash equivalents to meet normal operating requirements.

The Scheme’s most significant financial liability is in relation to members vested benefits. Telstra Super manages its obligation to pay such benefits based on management’s estimates and actuarial assumptions of when such benefits will be drawn down by members. The Trustee considers it is highly unlikely that a substantial number of members will request to roll over their benefit at the same time.

The Scheme’s liquidity risk is managed on a daily basis by the Investments and Finance Units in accordance with the liquidity policy and the Scheme’s Risk Management Strategy. Compliance with these policies is reported to the Trustee on a regular basis. The Scheme limits the allocation of illiquid assets and ensures that the allocation is consistent with the intended term of investment. The Scheme’s membership profile, coupled with the bulk of its assets being invested in highly liquid asset classes, allows the fund to tolerate a lower liquidity in regard to its alternative investments (e.g. property and infrastructure investments) in an expectation of higher investment returns in the longer term.

The following table summarises the maturity of Telstra Super’s financial liabilities based on undiscounted cash flows.

2010 Liability Benefits Payable Accounts Payable Derivative Liabilities Current Tax Liability

2009 Liability Benefits Payable

Less than 1 month to 3 1 month months

3 months to 1 year

Greater than 1 year

Total

$’000

$’000

$’000

$’000

$’000

240

-

-

-

240

31,415

-

-

-

31,415

431

29,050

7

31,145

60,633

-

15,399

56,063

-

71,462

32,086

44,449

56,070

31,145

163,750

Less than 1 month

1 month to 3 months

3 months to 1 year

Greater than 1 year

Total

$’000

$’000

$’000

$’000

$’000

1,033

-

-

-

1,033

Accounts Payable

17,849

-

-

-

17,849

Derivative Liabilities

38,838

140,261

21,072

39,793

239,964

Current Tax Liability

-

13,105

3,078

-

16,183

57,720

153,366

24,150

39,793

275,029

The above table does not include the Schemes ‘Liability for Accrued Benefits’ as it is not practicable to determine the timing of when such liabilities will be paid.

(d) Market Risk Market risk represents the risk that the fair value of future cash flows of a financial instrument will fluctuate as a result of changes in market prices, whether those changes are caused by factors specific to the individual instrument or its issuer or factors affecting all instruments in the market.

Market risk comprises three types of risk: market interest rates (interest rate risk), foreign exchange (currency

Telstra Super Annual Report 2009/2010

73

Notes to the Financial Statements 22 Financial instruments and risk management

continued

risk), and market prices (price risk). The Scheme’s policies and procedures put in place to mitigate the Scheme’s exposure to market risk are detailed in the Trustee’s Investment Policy and the Risk Management Strategy and Risk Management Plan. This includes the risk review processes and compliance testing undertaken by management and regularly reported to the Audit, Risk and Compliance committee.

Market risk is also minimised through ensuring that all investment activities are undertaken in accordance with established mandate limits and investment strategies. The market risk disclosures are prepared on the basis of Telstra Super’s direct investments and not on a look through basis.

Interest Rate Risk Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate as a result of changes in market interest rates. The majority of Telstra Super’s financial instruments are non-interest bearing with only cash, cash equivalents and fixed interest securities being directly subject to interest rate risk.

However movements in market interest rates can indirectly impact on the valuation of non-interest bearing investments. The Scheme may use derivatives to hedge against unexpected increases in interest rates.

Telstra Super’s exposures to interest rate movements on its financial instruments, by maturity, at balance date are as follows: 2010 Financial Assets Investments Cash and Receivables

2009 Financial Assets Investments Cash and Receivables

Floating Interest Rate

1 Year or Less

1 to 5 Years

More than Non-interest 5 years bearing

Total

$’000

$’000

$’000

$’000

$’000

$’000

438,161

1,358,843

314,751

226,564

7,788,814

10,127,133

6,935

-

-

-

41,722

48,657

445,096

1,358,843

314,751

226,564

7,830,536

10,175,790

Floating Interest Rate

1 Year or Less

1 to 5 Years

More than Non-interest 5 years bearing

Total

$’000

$’000

$’000

$’000

$’000

$’000

496,376

1,443,274

176,660

184,501

6,561,887

8,862,699

15,954

-

-

-

32,320

48,274

512,330

1,443,274

176,660

184,501

6,594,207

8,910,973

Interest on financial instruments classified as floating rate change at intervals of less than one year. Interest on financial instruments classified as fixed rate are fixed until the maturity of the instrument. Although non-interest bearing financial instruments do not pay an interest rate, their value is subject to movement in market interest rates. Investments in managed trust vehicles are included under non-interest bearing and their risks are covered in the price risk section.

Interest Rate Sensitivity analysis The sensitivity analysis has been determined based on the exposure to interest rates at the reporting dates. The analysis assumes that all other variables are held constant. Based on expected movements in the yields of 10 year Australian and US Government bonds a reasonably possible change of 75bp was an appropriate movement for 30 June 2009 and 30 June 2010. A change of 0.75% in interest rates with all other variables remaining constant would have decreased the net assets available to pay benefits by $26.510m (2009: $20.389m). A change of -0.75% in interest rates with all other variables remaining constant would have increased the net assets available to pay benefits by $26.543m (2009: $20.415m). The analysis is performed on the same basis for 2009 and are estimates only. The impact on net assets available to pay benefits mainly arises from the effect that the reasonably possible change in interest rates will have on the net market value of fixed interest securities.

Foreign Exchange Risk Foreign Exchange risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Foreign Exchange Risk is a component of price risk. Telstra Super has exposure to foreign exchange risk in the value of securities denominated in a foreign currency.

Foreign exchange contracts are used by our investment managers and by Telstra Super as an overlay control to reduce the exposure to such risk in the value of our underlying international investments by the use of forward currency contracts. The Scheme uses both passive and active managers to manage the risk of foreign exchange fluctuations in line with the Scheme’s Risk Management Plan and Strategy and the Scheme’s Investment Policy. On this basis, the Scheme’s overall exposure to foreign exchange risk is considered minimal after taking into account the forward currency contracts.

74

Connecting Australia for twenty years

Notes to the Financial Statements 22 Financial instruments and risk management continued In accordance with the Scheme’s Investment Policy, the Chief Investment Officer monitors the Scheme’s currency position on a regular basis. This information and the compliance with the Scheme’s overall exposure are reported to the relevant parties on a regular basis as deemed appropriate such as the Risk Officer, Compliance Manager, other key management personnel, the Audit Risk & Compliance Committee and ultimately the Board.

Sensitivity Analysis: The tables below indicate Telstra Super’s exposures at balance date to foreign exchange rate movements on its international investments. The analysis calculates the effects of a reasonably possible movement of currency rates against the Australian Dollar based on forecasts at balance date. Based on an assessment of historical ranges of currency and one standard deviation expectation an assumption of +/- 13% has been determined by the investment adviser as an appropriate assumption for this scenario analysis. A 13% strengthening/weakening of the Australian dollar against the following currencies at 30 June 2010 would have (decreased)/ increased the net assets available to pay benefits and the Change in Net Assets by the amounts shown below. The analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2009 where the volatility factor was expected to be 10%. The impact mainly arises from the reasonably possible change in foreign currency rates.

The reasonably possible movements in the risk variables have been determined based on the Trustee’s best estimate, having regard to a number of factors including the average absolute divergence between the unhedged and hedged MSCI World Index ex Australian annual returns over a 10 year period.

Effect on net assets of a change in currency rate

2010 Currency Gross investment amounts denominated in:

Amount

+ 13%

- 13%

A$’000

A$’000

A$’000

1,813,644

(79,071)

102,702

Great Britain pounds (GBP)

159,417

(10,863)

14,110

Euro (EUR)

433,653

(10,278)

13,350

United States dollars (USD)

Yen (JPY)

110,749

(6,465)

8,397

Other currencies

658,500

(69,482)

90,247

(176,159)

228,806

3,175,963 Amount effectively hedged

(1,644,725)

Net exposure

1,531,238

Effect on net assets of a change in currency rate

2009 Currency

Amount

+ 10%

- 10%

A$’000

A$’000

A$’000

United States dollars (USD)

1,384,028

(28,765)

35,157

Great Britain pounds (GBP)

130,639

(4,109)

5,022

Euro (EUR)

338,148

(10,828)

13,234

Yen (JPY)

84,480

(679)

830

495,542

(37,399)

45,710

(81,780)

99,953

Gross investment amounts denominated in:

Other currencies

2,432,837 Amount effectively hedged Net exposure

(1,533,263) 899,574

Other Market Price Risk Other market price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument, or factors affecting all similar instruments traded in the market. All securities investments present a risk of loss of capital.

Telstra Super Annual Report 2009/2010

75

Notes to the Financial Statements 22 Financial instruments and risk management

continued

The maximum risk is determined by the net market value of the financial instruments.

As all of Telstra Super’s financial instruments are carried at net market value with changes in net market value recognised in the Statement of Changes in Net Assets, all changes in market conditions will directly affect net investment income. Price risk is mitigated by investing in a diversified portfolio of financial instruments which are traded on various markets.

All investment managers are subject to extensive due diligence prior to being appointed with the recommendation for their appointment and removal made by the Investment Committee to the Board for final approval where required and all investment activities are undertaken in accordance with established mandate limits. Monthly reports are received from investment managers and the Master Custodian and these reports are reviewed in detail and assessed against relevant benchmarks. Investment manager performance is reported to the Investment Committee and Board on a monthly basis. The Trustee has determined that these investments are appropriate for the Scheme and are in accordance with the Scheme’s investment strategy.

Sensitivity Analysis The analysis below indicates the effect on the Statement of Changes in Net Assets due to a reasonably possible change in market factors, as represented by the equity indices, with all other variables held constant. Based on analysis of historical data in respect of asset class returns over 10 years and using this analysis to formulate expected future ranges of returns, the investment adviser has determined that the following assumptions are appropriate for this scenario analysis. These assumptions are based on an orderly market and as such the assumption below are based on an expected range of outcomes within +/- 1 standard deviation.

2010

2009

Change in Market Price

Effect on Net Assets/Returns $’000

Asset Class

Australian Equities

21%

777,964/(782,613)

Australian Equities

20%

436,324/(436,301)

International Equities

24%

667,035/(667,035)

International Equities

20%

472,685/(472,659)

Asset Class

Change in Market Price

Effect on Net Assets/Returns $’000

Alternative Assets

12%

36,483/(36,483)

Alternative Assets

12%

14,611/(14,611)

Listed Property

27%

122,511/(122,511)

Listed Property

25%

93,393/(93,393)

Direct Property

12%

91,520/(91,520)

Direct Property

12%

88,244/(88,244)

Fixed Interest Trusts

6.5%

4,494/(4,494)

Cash Trusts

5.5%

12,385/(12,385)

Fixed Interest Trusts

7%

852/(852)

Cash Trusts

5%

23,705/(23,705)

A process for the valuation of unlisted, infrequently valued assets is used to ensure valid valuations are used.

This involved seeking assurances from managers, ensuring latest accurate information available has been included and where necessary reviewing the latest audited financials of the relevant entity. All available valuation information has been incorporated in these financials. (e) Securities Lending Telstra Super has entered into securities lending arrangements with National Australia Bank Limited under which legal title to certain of the Scheme’s assets has been transferred to another entity, notwithstanding the fact that the risks and benefits of ownership of the assets remain with Telstra Super.

Telstra Super may call for the re-delivery of all or any borrowed securities at any time in the ordinary course of business upon notice of not less than the standard settlement time for such securities on the market through which they were originally delivered. Such calls for re-delivery have taken place from time to time, and there has been no instances of failed delivery.

Telstra Super restricts its involvement in the domestic equity lending program to lending only those securities contained in the ASX Top 200 Index.

The total value of assets subject to securities lending amount to $491.5m (2009: $321.5m), and income received was $0.7m (2009: $0.9m). Telstra Super has obtained collateral equal to at least 105% of the value of the assets subject to securities lending arrangements. (f) Classification of Financial Instruments under the Fair Value Hierarchy Fair Value Measurements Telstra Super is required to classify financial instruments using a fair value hierarchy that reflects the subjectivity of inputs used in making the measurements. The table below shows financial instruments recorded at net market value, analysed between the following levels: Level 1 - Those whose net market value is based on quoted market prices in active markets. An active market is a market in which transactions take place with sufficient frequency and volume to provide pricing on an ongoing basis;

76

Connecting Australia for twenty years

Notes to the Financial Statements 22 Financial instruments and risk management

continued

Level 2 - Those involving valuation techniques where all the model inputs are observable in the market.

The inputs can be directly or indirectly derived from prices in the marketplace; Level 3 - Those where the valuation technique involves the use of non-market observable inputs that are significant to the determination of net market value. The inputs are entity-specific and subjective.

2010 Financial Assets Equities and Trusts

Level 1

Level 2

Level 3

Total

$’000

$’000

$’000

$’000

5,091,767

242,970

3,635

5,338,372

153

1,835,060

501,015

2,336,228

Investment Vehicles Derivatives

41,636

Cash and Deposits

(46,723)

370,546

6

-

(5,081)

-

370,546

Perpetual Securities

-

70

-

70

Fixed Interest Bonds

-

679,306

1,153

680,459

4,076

228,138

326

232,540

202

13,469

-

13,671

-

1,192,408

-

1,192,408

Indexed Bonds Asset Backed Securities Discount Securities Other financial assets

-

-

-

-

5,508,380

4,144,698

506,135

10,159,213

Level 1

Level 2

Level 3

Total

$’000

$’000

$’000

$’000

2009 Financial Assets Equities and Trusts

3,298,653

781,670

5,432

4,085,755

-

1,922,633

392,812

2,315,445

32,691

163,495

22

196,208

185,866

-

-

185,866

76

-

-

76

Fixed Interest Bonds

574,186

1,208

2,990

578,384

Indexed Bonds

162,023

15,371

312

177,706

Investment Vehicles Derivatives Cash and Deposits Perpetual Securities

Asset Backed Securities

18,034

Discount Securities

-

Other financial assets

1,328,974

381

18,415

-

1,328,974

-

-

-

-

4,271,529

4,213,351

401,949

8,886,829

The level in which financial instruments are classified in the hierarchy is based on the lowest level of input that is significant to the net market value measurement in its entirety. Assessment of the significance of an input requires judgement after considering factors specific to the investment.

Disclosure of the methods and assumptions applied in determining the net market value for each class of financial assets are included in Note 2(c).

Level 3 Financial Instruments Transactions The following table shows a reconciliation of the movement in the fair value of financial instruments categorised within Level 3 between the beginning and the end of the reporting period.

2010 Financial Assets

Equities and Trusts

Investment Vehicles

Derivative Fixed/Indexed Assets Bonds

Asset Backed Securities

Net Market Value

A$’000

A$’000

A$’000

A$’000

A$’000

A$’000

Opening Balance

2,870

395,374

22

684

2,999

401,949

Total gains/losses

3,470

3,185

(6)

15

(143)

6,521

57

38,056

6

-

-

38,119

Purchases/Applications Sales/Redemptions

-

-

(22)

(373)

(254)

(649)

Transfers into level 3

65

64,400

6

-

-

64,471

Transfers out level 3

(2,827)

-

-

-

(1,449)

(4,276)

Closing Balance

3,635

501,015

6

326

1,153

506,135

Transfers Between Hierarchy Levels There have been no significant transfers between the Level 1 and Level 2 fair value hierarchies during the financial year.

Telstra Super Annual Report 2009/2010

77

Summary of Actuarial Report

TELSTRA SUPERANNUATION SCHEME SUMMARY OF ACTUARIAL REPORT ON 30 JUNE 2009 INVESTIGATION Kevin O’Sullivan, FlAA conducted the latest actuarial investigation of the Scheme at 30 June 2009, and presented the results in a report dated 28 May 2010. This attachment provides a summary of that report and the actuary’s opinion as to the financial condition of the Scheme.

Membership and Salaries As at 30 June 2009 there were 9,526 members of Division 2, 78 members of Division 5 and 49 members of Division 8 receiving defined benefits with salaries totalling $720.2 million, $8.5 million and $4.9 million respectively. The numbers of Division 2, 5 and 8 members had decreased by 43%, 20% and 25% respectively from the previous investigation as at 30 June 2006.

In addition to these defined benefit members, there were approximately 26,300 members of Divisions 3, 6, and 8 and approximately 59,500 members in Division 4 with retained benefits (including spouse accounts) and 3,000 account~based pensioners. These members receive accumulation style benefits with account balances totalling $6,641.6 million.

The average annual increase in members’ salaries since the previous investigation for defined benefit members who were in the Scheme at both the current and the previous investigation dates (i.e. 30 June 2006 and 30 June 2009) was 3.5% p.a.

Assets The net market value of assets at 30 June 2009 was $9,030.6 million.

For the purpose of the actuarial investigation, the net market value of assets used was $9,030.6 million.

The average return on the market value of assets between 1 July 2006 and 30 June 2009 was -0.96% p.a.

Funding Method The main purposes of the actuarial investigation and report are to assess the financial position of the Scheme, identify the long term funding rate of the Scheme’s benefits and to confirm the continuing adequacy of the contribution rates in the Funding Deed between Telstra and Telstra Super. To do this the actuary has adopted a method of funding benefits known as the Aggregate Funding method. Under this method, the long term Telstra contribution rate is calculated based on the difference between the net market value of assets and the total Scheme liabilities.

As part of the 30 June 2009 investigation, the assumptions used for the long term assessment were reviewed in light of the actual experience of the Scheme. The principal assumptions adopted in the investigation were a long term investment return of 7.5% p.a. and a long term salary inflation rate of 4.5% p.a. The implied “gap” of 3.0% p.a. stays unchanged from the previous investigation.

The demographic assumptions adopted were the same as those adopted for the previous investigation with the exception of the disability and retrenchment assumptions. The disability rates have been reduced to reflect the experience of the Scheme. The retrenchment assumptions were revised based on current information provided by Telstra.

Fund Indices The Vested Benefits Index (VBI) is the ratio of the net market value of assets to the members’ current vested benefit entitlements should all members voluntarily resign at the investigation date. The VBI at 30 June 2009 was 80%.

The Accrued Benefits Index (ABI) is a longer term measure of solvency. The Scheme’s ABI at 30 June 2009 was 79%.

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Recommended Contribution and Financial Condition The VBI was under 104% as at 30 June 2009 and Telstra re-commenced its contributions to the Scheme from 26 November 2008.

Under the terms of the Funding Deed, if the average VBI for a quarter falls below 90%, the Company contribution rate will be determined by the Actuary. I advised that, if the average VBI for a quarter were to be below 90%, the company should contribute at the rate of 27% of defined benefit members’ salaries.

I have reviewed the appropriateness of the May 2004 Funding Deed and am satisfied that employer contributions at rates in accordance with that Funding Deed (based on a 27% contribution rate when the average VBI is less than 90%) are expected to restore the financial position of the Scheme to a satisfactory level over a reasonable period.

I therefore recommend that Telstra make contributions to the Scheme at the rates as set out in the May 2004 Funding Deed as agreed between Telstra and Telstra Super. This includes my recommended 27% contribution rate when the average VBI for a quarter is below 90%.

I have also made the following recommendations: • P rior to 30 June 2012, consideration be given to amending the Funding Deed to reduce or eliminate the potential for a contribution holiday in respect of accumulation division members to materially worsen the Scheme’s financial position.

• B y 30 June 2011, Telstra and the Trustee agree to adopt one of the following approaches with respect to the insurance cover of accumulation members:

(a) The Scheme continues to pay the insurance premiums but Telstra will reimburse the Fund, at least annually, for the premiums that Telstra Super advises are in respect of the basic level of cover for accumulation members; or

(b) The insurance premiums continue to be paid out of defined benefit assets but all contribution rates in the Funding Deed would be increased by 1% of defined benefit member salaries to cover the cost; or

(c) Commence to pass on the cost of these insurance premiums to members via deductions from their accounts, Of course, this would result in a change to members’ benefits and many discussions and agreements would be required before adopting this approach.

•

he Funding Deed be reviewed at least every three years or in the event of a significant change to the membership or benefits T of the Scheme;

•

The current insurance arrangements of the Scheme remain appropriate for the Scheme;

•

The level of the Death and Disablement reserve be reviewed annually; and

•

The next full actuarial investigation be made with an effective date no later than 30 June 2012.

M.K. O’Sullivan Fellow of the Institute of Actuaries of Australia 20 July 2010

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Important Information

Telstra Super Trust Deed changes The Telstra Super Trust Deed sets out the rules by which Telstra Super is managed. There were no amendments made to the Trust Deed during this financial year.

You can obtain a copy of the Telstra Super Trust Deed online at www.telstrasuper.com.au Surcharge The Government abolished the superannuation surcharge from 1 July 2005, however, surcharge assessments may still be issued for the 2004/2005 and previous financial years.

If you have an accumulation account and we received a surcharge assessment for you, the amount of your surcharge assessment was deducted from your accumulation account.

If you are a defined benefit member, any surcharge applicable to your defined benefit was recorded in your Surcharge Account. You may have chosen to pay an amount equal to the amount of the surcharge, which Telstra Super Pty Ltd then applied against your Surcharge Account. If you did not pay the amount in your Surcharge Account by the date nominated on your assessment, interest will be charged to this account. The balance of this account will be deducted from your final benefit when you cease to be a defined benefit member. The surcharge interest rate* for 2009/2010 was 5.50%, decreasing to 5.00% for 2010/2011. *T his rate is based on the Commonwealth Government 10 year bond yield as at the previous 30 June, rounded to the nearest 0.25%.

Telstra Super’s advisers We use external professional advisers to ensure that Telstra Super continues to operate correctly and efficiently. Telstra Super’s key advisers for the year to 30 June 2010 are listed below.

Actuarial advisers

Russell Investment Group

Asset consultant

JANA Investment Advisers Pty Ltd

External auditors

Ernst & Young

Principal legal advisers Freehills Master Custodian

National Australia Bank Limited

Reserves The Trustee also has an insurance reserve to meet benefits internally insured, a general reserve to meet any large unexpected expenses, and a reserve to meet APRA licensing requirements. The reserves to meet APRA licensing requirements is invested in a term deposit, and the remainder is invested in line with the defined benefit investment strategy of the fund. The total value of the reserves in each of the last three years was as follows: 30 June 2010 $30,250,000; 30 June 2009 $30,250,000 and 30 June 2008 $30,250,000.

Derivatives A derivative is a financial contract, the value of which depends on or is derived from assets, liabilities or indices (the underlying asset). Derivative transactions include a wide assortment of instruments such as forwards, futures, options, share ratios, warrants, swaps and other composites.

The use of derivatives in external and internal investment mandates is authorised under Telstra Super’s Trust Deed. Use of derivatives for gearing or speculative purposes is prohibited.

The responsible and properly managed use of derivatives assists Telstra Super Pty Ltd to achieve its investment objectives for the fund. Derivatives are used principally to: • reduce volatility • reduce transaction costs, and • to change asset allocation in a timely and cost effective manner.

Telstra Super Pty Ltd monitors the use of derivatives by: • internal controls • internal and external auditors, and • an external custodian Temporary residents If you are a temporary resident, that is, not an Australian or New Zealand citizen, a permanent resident of Australia, or the holder of a Subclass 405 visa or a Subclass 410 visa, conditions of release to access your super changed on 1 April 2009: • If you have not claimed your benefit within six months of departing Australia, it becomes ‘unclaimed money’ and Telstra Super must pay it to the Australian Taxation Office (ATO).

• I f your benefit is transferred to the ATO, you are able to apply to the ATO for your benefit. Under the relief provided by ASIC Class Order 09/437 no exit statement will be provided to you at the time of, or after, the transfer of your benefit. Please contact 1300 033 166 if you require further information.

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Part of the Telstra Super Family

Telstra Super Pty Ltd, ABN 86 007 422 522, AFSL 236709, is the Trustee of the Telstra Superannuation Scheme (Telstra Super), ABN 85 502 108 833.

References to Telstra Super Financial Planning in this report are to Telstra Super Financial Planning Pty Ltd (ABN 74 097 777 725), AFSL 218705. Š Telstra Super Pty Ltd, September 2010. Ž are registered trademarks in Australia of the Telstra Corporation Limited. ™ are trademarks in Australia of the Telstra Corporation Limited.

Disclaimers The intent of this report is to provide useful information, not investment or financial advice, and the information should not be construed as investment or financial advice. Each member is ultimately responsible for making his or her own investment decisions and obtaining whatever assistance he or she deems necessary.

The information in this report is of a general nature only, and should not be construed as investment or financial advice. It is not intended to be, and is not, a complete or definitive statement of all matters outlined in it. Telstra Super Pty Ltd does not recommend that any member make decisions concerning superannuation arrangements based solely on this report.

Formal legal documents, called the governing rules, and relevant legislation ultimately govern the operation of the Telstra Superannuation Scheme (Telstra Super).

The central document is the Telstra Super Trust Deed.

Should there be any discrepancies between the information in this report and the governing rules, the governing rules will prevail.

The details in this annual report are correct as at September 2010.

This report was designed by X2 Design.

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The heartbeat of Telstra Super is you and your family. Thank you for supporting us as we work hard for you.

Telstra Super Annual Report 2009/2010

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Contacting us

If you have any questions about Telstra Super or your membership you can:

Call 1300 033 166 Our Member Services Consultants are available from 8.00am to 5.30pm (Melbourne time), Monday to Friday.

Visit www.telstrasuper.com.au Send us an enquiry or use SuperOnline™ to access or update your super details.

Fax 03 9653 6060 This fax line is dedicated to member enquiries.

Write Telstra Super Pty Ltd PO Box 14309 MELBOURNE VIC 8001 Visit Melbourne Foyer, 242 Exhibition Street, Melbourne Brisbane Level 16, 300 Adelaide Street, Brisbane Sydney Suite 2, Level 3, 66-74 Clarence Street, Sydney Adelaide Level 7, 19 Grenfell Street, Adelaide Head Office Level 8, 215 Spring Street, Melbourne

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