Macquarie Australian Equity Income Fund …...MQ Portfolio Management Limited, as Responsible Entity of the Fund, is entitled to fees for so acting. Macquarie Bank Limited and its

Macquarie Australian Equity Income Fund (formerly MQ Buy Write Fund)

Financial ReportFor the year ended 30 June 2008

ARSN 115 880 736

The Responsible Entity of Macquarie Australian Equity Income Fund (formerly MQ Buy Write Fund) is MQPortfolio Management Limited(ACN 092 552 611)

The Responsible Entity’s registered office is:No.1 Martin PlaceSydney NSW 2000

MQ Portfolio Management Limited ACN 092 552 611 (Responsible Entity of Macquarie Australian Equity Income Fund (formerly MQ BuyWrite Fund) (“the Fund”) ARSN 115 880 736) is a wholly owned subsidiary of Macquarie Bank Limited ACN 008 583 542 which in turn is awholly owned subsidiary of Macquarie Group Limited ACN 122 169 279.

Other than Macquarie Bank Limited ABN 46 008 583 542 ("MBL"), any Macquarie Group entity noted on this page is not an authoriseddeposit-taking institution for the purposes of the Banking Act 1959 (Commonwealth of Australia). That entity's obligations do not representdeposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of that entity,unless noted otherwise.

This report is not an offer or invitation for subscription or purchase, or a recommendation of securities. It does not take into account theinvestment objectives, financial situation and particular needs of the investor. Before making an investment in Macquarie Australian EquityIncome Fund (formerly MQ Buy Write Fund), the investor or prospective investor should consider whether such an investment isappropriate to their particular investment needs, objectives and financial circumstances and consult an investment adviser if necessary.

MQ Portfolio Management Limited, as Responsible Entity of the Fund, is entitled to fees for so acting. Macquarie Bank Limited and itsrelated corporations, together with their officers and Directors, may hold units in Macquarie Australian Equity Income Fund (formerly MQBuy Write Fund) from time to time.

CONTENTS

Page

Financial ReportFinancial StatementsDirector's report 1Auditor's independence declaration 4Income statement 5Balance sheet 6Statement of changes in equity 7Cash flow statement 8Notes to the financial report 9Director's declaration 31Independent auditor's report to the unitholders 32


Director's report

For the year ended 30 June 2008

In respect of the year ended 30 June 2008, the Directors of MQ Portfolio Management Limited (“Responsible Entity”) submitthe following report on the financial report of Macquarie Australian Equity Income Fund (formerly MQ Buy Write Fund)(“Fund”) made out in accordance with a resolution of the Directors.

Directors

The following persons held office as Directors of MQ Portfolio Management Limited during the year or since the end of theyear and up to the date of this report:

Names Appointed/resigned

Ottmar WeissGregory John Mackay Resigned 19 September 2008Bruce Neil TerryJames Kimberly Burke Resigned 25 September 2007Gervaise Robert John Heddle Appointed 1 November 2007

Units held by Directors or their director related entities are disclosed in the relevant note to the financial report.

Principal activities

The principal activity of the Fund is to buy a portfolio of Australian shares and sell options over some or all of those shares,or options over a share price index or share price index futures, to enhance income and manage risk.

The Fund did not have any employees during the year.

There were no significant changes in the nature of the Fund's activities during the year.

Significant changes in state of affairs

In the opinion of the Directors, there were no significant changes in the state of affairs of the Fund that occurred during thefinancial year which are not otherwise disclosed in this report.

Events subsequent to balance sheet date

On 19 September 2008, Gregory John Mackay resigned as a director of MQ Portfolio Management Limited.

The Fund changed its name from MQ Buy Write Fund to Macquarie Australian Equity Income Fund on 1 July 2008.

As at the date of this report the Directors are not aware of any other matters or circumstances which have arisen since theend of the financial year which significantly affected or may significantly affect the operations of the Fund, the results ofthose operations or the state of affairs of the Fund in future financial years subsequent to 30 June 2008 which are nototherwise disclosed in this report.

Likely developments and expected results of operations

The Fund will continue to be managed in accordance with the investment objectives and guidelines set out in the governingdocuments of the Fund and in accordance with the provisions of the Fund Constitution.

The results of the Fund will be affected by a number of factors, including the performance of investment markets in whichthe Fund invests. Investment performance is not guaranteed and future returns may differ from past returns. As investmentconditions change over time, past returns should not be used to predict future returns.

1


Director's report


Disclosures of information relating to the likely developments in the operations, and the expected results of thoseoperations in future financial years of the Fund have not been included in this report as the Responsible Entity believes itmay result in unreasonable prejudice to the Fund.

Environmental regulation

The Fund's operations are not regulated by any significant environmental regulation under a Commonwealth, State orTerritory law.

Indemnifying officers or auditors

No insurance premiums are paid for out of the assets of the Fund in regard to insurance cover provided to either theResponsible Entity or the auditors of the Fund. So long as the officers of the Responsible Entity act in accordance with theFund Constitution and the Corporations Act 2001, the officers remain indemnified out of the assets of the Fund against anylosses incurred while acting on behalf of the Fund. The auditors of the Fund are in no way indemnified out of the assets ofthe Fund.

Fees paid to and interests held in the Fund by the Responsible Entity or its associates

Fees paid to the Responsible Entity out of Fund property during the year are disclosed in note 13 to the financial report.

No fees were paid out of Fund property to the directors of the Responsible Entity during the year.

Interests in the Fund held by the Responsible Entity and its associates during the year are disclosed in note 13 to thefinancial report.

Review and results of operations

The financial report for the financial year ended 30 June 2008, and the results herein, are prepared in accordance withAustralian Equivalents to International Financial Reporting Standards (“AIFRS”).

The operating profit from continuing activities before financing costs attributable to ordinary unitholders, under AIFRS, forthe financial year ended 30 June 2008 was a profit/(loss) of $(1,772,290) (2007: $6,835,948).

Results

2008$

2007$

Total net investment income/(loss) (827,188) 8,524,098

Operating profit/(loss) before finance costs attributable to unitholders (1,772,290) 6,835,948

2


Director's report


Distributions

Distribution paid and payable

2008

$

5,089,771

2007

$

Value of assets

Net assets for unit pricing purposes

Effect of classification of net assets attributable to unitholders as liabilities

2008

$

27,655,997

(27,655,997)

2007

$

49,147,175

(49,147,175)

Net assets under AIFRs

Interests in the Fund

The movement in units on issue in the Fund during the year is disclosed in note 5 of the financial report.

The value of the Fund's assets and liabilities is disclosed on the balance sheet and derived using the basis set out in note 1of the financial report.

Auditor's independence declaration

A copy of the Auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out onpage 4 of the financial report.

Signed in accordance with a resolution of the Board of Directors:

D;cectoco ...............~...........m............................................................................

Gervaise Robert John Heddle

Dat,d th;, ...........2..J...... day of .......9..cr./.... 2008

3

fJcEW7ËRHOUsF(aJPERS I

PricewaterhouseCoopersABN 52 780 433 757

Darling Park Tower 2201 Sussex StreetGPO BOX 2650SYDNEY NSW 1171DX 77 SydneyAustraliaww.pwc.com/auTelephone +61282660000Facsimile +61 2 8266 9999

Auditor's Independence Declaration

As lead auditor for the audit of Macquarie Australian Equity Income Fund (formerly MQ Buy WriteFund) for the year ended 30 June 2008, I declare that to the best of my knowledge and belief, therehave been:

a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in

relation to the audit; and

b) no contraventions of any applicable code of professional conduct in relation to the audit.

This declaration is in respect of Macquarie Australian Equity Income Fund (formerly MQ Buy WriteFund) during the year.

~PK MerrettPartnerPricewaterhouseCoopers

Sydney30 September 2008

Liabilty limited by a scheme approved under Professional Standards Legislation


Income statement


Note2008

$2007

$Investment incomeInterest income from financial assets not held at fair value through profit or loss 193,652 280,981Net gains/(losses) on financial instruments held at fair value through profit or loss 4 (2,705,055) 5,638,084Dividend income 1,679,116 2,498,447Other operating income 5,099 106,586

Total net investment income/(loss) (827,188) 8,524,098

ExpensesManagement fees 13 638,328 1,128,585Performance fees 13 - 97,822Interest expense 241,143 392,099Transaction costs 65,631 69,644

Total operating expenses 945,102 1,688,150

Operating profit/(loss) (1,772,290) 6,835,948

Financing costs attributable to unitholdersDistributions to unitholders 6 (5,089,771) -(Increase)/decrease in net assets attributable to unitholders 5 6,862,061 (6,835,948)

Profit/(loss) for the year - -

The above income statement should be read in conjunction with the accompanying notes

5


Balance sheet

As at 30 June 2008

Note2008

$2007

$AssetsCash and cash equivalents 7 429,319 256,359Receivables 10 1,462,644 6,039,980Financial assets held at fair value through profit or loss 8 31,110,187 60,082,805

Total assets 33,002,150 66,379,144

LiabilitiesPayables 11 207,664 16,540,127Financial liabilities held at fair value through profit or loss 9 48,718 691,842Distributions payable 6 5,089,771 -

Total liabilities (excluding net assets attributable to unitholders) 5,346,153 17,231,969

Net assets attributable to unitholders - liability 5 27,655,997 49,147,175

Represented byNet assets attributable to unitholders - liability 27,655,997 49,147,175

The above balance sheet should be read in conjunction with the accompanying notes

6


Statement of changes in equity


Note2008

$2007

$

Total equity at the beginning of the financial year - -Profit/(loss) for the year - -Net income/(expense) recognised directly in equity - -

Total recognised income and expense for the year - -

Transactions with equity holders in their capacity as equity holders - -

Total equity at the end of the financial year - -

Under AIFRS, net assets attributable to unitholders are classified as a financial liability rather than equity. As a result therewas no equity at the start or end of the current year.

The above statement of changes in equity should be read in conjunction with the accompanying notes.

7


Cash flow statement


Note2008

$2007

$Cash flows from operating activities

Proceeds from sale of financial instruments at fair value through profitor loss 66,980,996 139,406,771

Purchase of financial instruments at fair value through profit or loss (48,927,111) (164,111,547)Dividends received 1,752,098 2,284,383Interest received 195,430 268,607Other income received 11,659 132,572Interest paid (242,734) (390,332)Management fees paid (699,101) (1,055,034)Performance fees paid - (97,822)Other expenses paid (65,090) (78,110)Due from/to brokers (4,228,011) 2,859,839

Net cash inflow/(outflow) from operating activities 14 14,778,136 (20,780,673)

Cash flows from financing activitiesPayments for redemptions by unitholders (16,437,629) (24,507,416)Proceeds from applications by unitholders 1,830,107 9,424,427Distributions paid - (5,809,812)

Net cash inflow/(outflow) from financing activities (14,607,522) (20,892,801)

Net increase/(decrease) in cash and cash equivalents 170,614 (41,673,474)Cash and cash equivalents at beginning of year 256,359 41,929,293Effect of foreign currency rate changes on cash and cash equivalents 2,346 540

Cash and cash equivalents at end of year 7 429,319 256,359

The non-cash financing activities of the Fund have been disclosed in note 14(b).

The above cash flow statement should be read in conjunction with the accompanying notes

8


Notes to the financial report


1 Summary of significant accounting policies

General information

The financial report covers Macquarie Australian Equity Income Fund (formerly MQ Buy Write Fund) ("Fund") as anindividual entity. The Fund was registered as a managed investment scheme and will terminate 80 years (less oneday) after the date of establishment, unless terminated earlier by an extraordinary resolution as determined by theFund's members; the date specified by the Fund's Responsible Entity in a notice given to the Fund's members or onanother date as specified by and in accordance with the Fund's Constitution or by law.

The Responsible Entity of the Fund is MQ Portfolio Management Limited, a wholly owned subsidiary of MacquarieBank Limited (“MBL”) which in turn is a wholly owned subsidiary of Macquarie Group Ltd. The registered office of theResponsible Entity is No.1 Martin Place, Sydney, NSW 2000. The financial report is presented in the Australiancurrency.

The principal activity of the Fund is to invest in the equity market using a traditional buy-write strategy of investing in adiversified portfolio of high-yielding Australian listed shares and selling long dated out-of-money call options over thesecurities held, as per the objectives stated in the Product Disclosure Statement.

The financial report was authorised for issue by the Directors on 25 September 2008. The Directors of the ResponsibleEntity have the power to amend and reissue the financial report.

The principal accounting policies adopted in the preparation of the financial report are set out below. These policieshave been consistently applied to all the years presented, unless otherwise stated.

(a) Basis of preparation

This general purpose financial report has been prepared in accordance with Australian Accounting Standards,other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues GroupInterpretations, the Corporations Act 2001 in Australia and the Fund Constitution.

The financial report is prepared on the basis of fair value measurement of assets and liabilities except whereotherwise stated.

Compliance with International Financial Reporting Standards (IFRS)

Australian Accounting Standards include Australian equivalents to International Financial Reporting Standards(AIFRS). Compliance with AIFRS ensures that the financial report of the Fund, comprising the financialstatements and notes thereto, complies with International Financial Reporting Standards.

(b) Financial instruments

(i) Classification

The Fund's investments are classified as at fair value through profit or loss. They comprise:

• Financial instruments held for trading

These include derivative financial instruments including futures and options. The Fund does not designate anyderivatives as hedges in a hedging relationship.

• Financial instruments designated at fair value through profit or loss upon initial recognition.

These include financial assets that are not held for trading purposes and which may be sold. These areinvestments in exchange traded debt and equity instruments, unlisted trusts, unlisted equity instruments andcommercial paper.

9




1 Summary of significant accounting policies continued

(b) Financial instruments continued

(i) Classification continued

Financial assets and financial liabilities designated at fair value through profit or loss at inception are those thatare managed and their performance evaluated on a fair value basis in accordance with the Fund’s documentedinvestment strategy. The Fund’s policy is for the Responsible Entity to evaluate the information about thesefinancial assets on a fair value basis together with other related financial information.

The Fund makes short sales in which a borrowed security is sold in anticipation of a decline in the market valueof that security, or it may use short sales for various arbitrage transactions. Short sales are classified asfinancial liabilities at fair value through profit or loss.

(ii) Recognition/derecognition

The Fund recognises financial assets and financial liabilities on the date it becomes party to the contractualagreement (trade date) and recognises changes in fair value of the financial assets or financial liabilities fromthis date.

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

(iii) Measurement

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

• Fair value in an active market

The fair value of financial assets and liabilities traded in active markets is based on their quoted market pricesat the balance sheet date without any deduction for estimated future selling costs. Financial assets are priced atcurrent bid prices, while financial liabilities are priced at current asking prices.

• Fair value in an inactive or unquoted market

The fair value of financial assets and liabilities that are not traded in an active market is determined usingvaluation techniques. These include the use of recent arm’s length market transactions, reference to the currentfair value of a substantially similar other instrument, discounted cash flow techniques, option pricing models orany other valuation technique that provides a reliable estimate of prices obtained in actual market transactions.

For other pricing models, inputs are based on market data at the balance sheet date. Fair values for unquotedequity investments are estimated, if possible, using applicable price/earnings ratios for similar listed companiesadjusted to reflect the specific circumstances of the issuer.

10





(b) Financial instruments continued

(iv) Offsetting financial instruments

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

(c) Net assets attributable to unitholders

Units are redeemable at the unitholders' option and are therefore classified as financial liabilities. The units canbe put back to the Fund at any time for cash based on the redemption price. The fair value of redeemable unitsis measured at the redemption amount that is payable (based on the redemption unit price) at the balancesheet date if unitholders exercised their right to put the units back to the Fund.

(d) Cash and cash equivalents

For cash flow statement presentation purposes, cash and cash equivalents includes cash on hand, depositsheld at call with financial institutions, other short term, highly liquid investments with original maturities of threemonths or less that are readily convertible to known amounts of cash and which are subject to an insignificantrisk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilitieson the balance sheet.

Payments and receipts relating to the purchase and sale of investment securities are classified as cash flowsfrom operating activities, as movements in the fair value of these securities represent the Fund's main incomegenerating activity.

(e) Investment income

Investment income represents dividend income, interest income and changes in the fair value of, and realisedgains on investments. Interest income and expenses are recognised in the income statement for all financialinstruments that are not held at fair value through profit or loss on an accruals basis. Interest income on assetsheld at fair value through the profit or loss is included in the net gains/(losses) on financial instruments. Otherchanges in fair value for such instruments are recorded in accordance with the policies described in note 1(b).

Dividend income is recognised on the ex-dividend date with any related foreign withholding tax recorded as anexpense.

(f) Expenses

All expenses, including Responsible Entity’s fees and custodian fees, are recognised in the income statementon an accruals basis.

(g) Income tax

Under current legislation, the Fund is not subject to income tax provided the taxable income of the Fund is fullydistributed either by way of cash or reinvestment (ie unitholders are presently entitled to the income of theFund).

Financial instruments held at fair value may include unrealised gains. Should such a gain be realised, thatportion of the gain that is subject to tax will be distributed so that the Fund is not subject to tax on the realisedgain.

11





(g) Income tax continued

Realised losses are not distributed to unitholders but are retained in the Fund to be offset against any realisedgains. If realised gains exceed realised losses, the excess is distributed to unitholders.

The benefit of imputation credits and foreign tax paid are passed on to unitholders.

The Fund may incur withholding tax imposed by certain countries on investment income. Such income isrecorded net of withholding tax in the income statement.

(h) Distributions

In accordance with the Fund Constitution, the Fund fully distributes its distributable (taxable) income, and anyother amounts determined by the Responsible Entity, to unitholders by cash or reinvestment. The distributionsare recognised in the income statement as finance costs attributable to unitholders.

(i) Increase/decrease in net assets attributable to unitholders

Income not distributed is included in net assets attributable to unitholders. Movements in net assets attributableto unitholders are recognised in the income statement as finance costs.

(j) Foreign currency translation

Functional and presentation currency

Items included in the Fund’s financial report are measured using the currency of the primary economicenvironment in which it operates (the “functional currency”). This is the Australian dollar, which reflects thecurrency of the economy in which the Fund competes for funds and is regulated. The Australian dollar is alsothe Fund’s presentation currency.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing atthe dates of the transactions. Foreign exchange gains and losses resulting from the settlement of suchtransactions and from the translation at year end exchange rates of monetary assets and liabilities denominatedin foreign currencies are recognised in the Income Statement.

The Fund does not isolate that portion of gains or losses on securities and derivative financial instruments thatare measured at fair value through profit or loss and which is due to changes in foreign exchange rates fromthat which is due to changes in the market price of securities. Such fluctuations are included with the net gainsor losses on financial instruments at fair value through profit or loss.

(k) Due from/to brokers

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

12





(l) Receivables

Receivables may include amounts for dividends, interest and fund distributions. Dividends are accrued whenthe right to receive payment is established. Interest is accrued at the reporting date from the time of lastpayment in accordance with the policy set out in note 1(e) above. Amounts are generally received within 30days of being recorded as receivables.

(m) Payables

Payables include liabilities and accrued expenses owing by the Fund which are unpaid as at balance date.

The distribution amount payable to unitholders as at the reporting date is recognised separately on the balancesheet as unitholders are presently entitled to the distributable income under the Fund's Constitution.

(n) Applications and redemptions

Applications received for units in the Fund are recorded net of any entry fees payable prior to the issue of unitsin the Fund. Redemptions from the Fund are recorded gross of any exit fees payable after the cancellation ofunits redeemed.

(o) Goods and Services Tax (GST)

The amount of GST incurred by the Fund that is not recoverable from the Australian Taxation Office (“ATO”) isrecognised as an expense or as part of the cost of acquisition of an asset. The Fund qualifies for Reduced InputTax Credits at the rate of 75% on various services such as Manager’s fees and Trustee’s fees. These expenseshave been recognised in the Income Statement net of the amount of GST recoverable from the ATO. The netamount of GST recoverable/payable from/to the ATO is included in the balance sheet. Cash flows relating toGST are included in the cash flow statement on a gross basis.

(p) Use of estimates

The Fund makes estimates and assumptions that effect the reported amounts of assets and liabilities within thenext financial year. Estimates are continually evaluated and are based on historical experience and otherfactors, including reasonable expectations of future events. The Directors believe the estimates used inpreparing the financial report are reasonable. Actual results in the future may differ from those reported.

For the majority of the Fund's financial instruments, quoted market prices are readily available. However certainfinancial instruments, for example, over the counter derivatives or unquoted securities are fair valued usingvaluation techniques. Where valuation techniques (for example pricing models) are used to determine fairvalues, they are validated and periodically reviewed by experienced personnel of the Responsible Entity,independent of the area that created them. Models are calibrated by back-testing to actual transactions toensure that outputs are reliable.

Models use observable data, to the extent practicable. However, areas such as credit risk (both own andcounterparty), volatilities and correlations require management to make estimates. Changes in assumptionsabout these factors could affect the reported fair value of financial instruments.

For certain other financial instruments, including amounts due from/to brokers, accounts payable and accruedexpenses, the carrying amounts approximate fair value due to the immediate short-term nature of thesefinancial instruments.

13





(q) New accounting standards and interpretations

Certain new accounting standards and interpretations have been published that are not mandatory for 30 June2008 reporting periods. The Directors’ assessment of the impact of these new standards (to the extent relevantto the Fund) and interpretations is set below:

i) AASB 8 Operating Segments and AASB 2007-3 Amendments to Australian Accounting Standards arisingfrom AASB 8.

AASB 8 and AASB 2007-3 are effective for annual reporting periods beginning on or after 1 January 2009. TheFund has not adopted these standards early. Application of these standards will not effect any of the amountsrecognised in the financial report, but may effect the segment disclosures provided in note 15.

ii) Revised AASB 101 Presentation of financial statements and AASB 2007-8 Amendments to AustralianAccounting Standards arising from AASB 101.

AASB 101 (Revised) is applicable to annual reporting periods beginning on or after 1 January 2009. The Fundhas not adopted this standard early. It requires the presentation of a statement of comprehensive income andmakes changes to the statements of changes in equity but will not effect any of the amounts recognised in thefinancial report. If the Fund makes a prior period adjustment or re-classifies items in the financial report, it willneed to disclose a third balance sheet (statement of financial position), this one being at the beginning of thecomparative period.

iii) AASB 132 Financial Instruments: Presentation and AASB 2008-2 Amendments to Australian AccountingStandards - Puttable Financial Instruments and Obligations Arising on Liquidation (Revised AASB 132).

Revised AASB 132 is applicable for reporting periods beginning on or after 1 January 2009. The Fund has notadopted this standard early. Application of this standard will not effect any of the amounts recognised in thefinancial report as the Fund is obligated to distribute all of its taxable income in accordance with the Fund'sConstitution. Accordingly, there will be no change to classification of unitholders' funds as a liability andtherefore no impact on profit or loss and equity.

(r) Segment reporting

A business segment is identified for a group of assets and operations engaged in providing products or servicesthat are subject to risks and returns that are different to those of other business segments. A geographicalsegment is identified when products or services are provided within a particular economic environment subjectto risks and returns that are different from those of segments operating in other economic environments.

(s) Margin accounts

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

14




2 Financial risk management

The Fund’s activities expose it to a variety of financial risks: market risk (including price risk, foreign exchange risk andinterest rate risk), credit risk and liquidity risk.

The Fund’s overall risk management programme focuses on ensuring compliance with the Fund’s Product DisclosureStatement and seeks to maximise the returns derived for the level of risk to which the Fund is exposed. The Fund usesderivative financial instruments to alter certain risk exposures. Financial risk management is carried out by theinvestment management department under policies approved by the Board of Directors of the Responsible Entity (theBoard).

The Fund uses different methods to measure different types of risk to which it is exposed. These methods may includesensitivity analysis in the case of foreign exchange and other price risks and ratings analysis for credit risk.

The Investment Manager adopted the following investment objectives, policies and processes for managing the Fund’scapital:

Investment objectives

The Fund's investment objective is to generate income from equities above that of the S&P / ASX 200 Index. The Fundseeks to achieve its investment objective through investing in a portfolio of Australian shares and sell options oversome or all of those shares, or options over a share price index or share price index futures, and therefore is exposedto foreign exchange risk, credit risk, interest rate risk, other price risk and liquidity risk. The Fund aims to achievehigher levels of returns with moderate to high levels of risk by providing exposure to a portfolio of specialist equitystrategies managed by the investment manager, MQ Specialist Investment Management Limited ("InvestmentManager").

The Fund trades in regulated financial markets. The laws and regulations that govern these markets may change in away that adversely affects the ability of the Fund to meet its investment objective.

Investment policies

The primary objective of the Fund is to generate income from equities above S&P / ASX 200 Index. As share pricevolatilities increase with changing market conditions, the Fund’s positions are monitored for both long and shortpositions as a primary measure. These limits are identified and calculated by the divisional risk management team inconjunction with the Risk Management Division of the investment manager. Further, these limits are monitored on adaily basis and their adequacy is reviewed on an ongoing basis. There are self imposed parameters such as country,section and stock exposure limits currently applying to the Fund as a secondary measure, and these are subject toongoing review.

Derivatives are generally used for hedging purposes but may be used to gain market exposure. Exchange traded andover the counter derivatives, including (but not limited to) futures and options may be used by the Fund. The relativelysmall margin required to establish a position in these instruments permits a high degree of leverage. As a result, theseinstruments can be highly volatile. Basis risk (ie the risk that the derivative position will not move in line with theunderlying position) is taken into account by the investment managers as part of the investment process. Dailymonitoring of the use of derivatives is undertaken by the divisional risk team. Any breaches are reported tocompliance and management.

Investment processes

The Fund aims to achieve its objective by buying Australian shares and selling options to enhance income. The Fundaims to create a portfolio with a high degree of correlation to the S&P / ASX 200 index, earn market-based levels ofdividends and franking credits on shares in that portfolio and generate additional income over and above the incomegenerated from dividends, due to the amount received (premium) on each option sold by the Fund.

The risks and the respective risk management policies employed by the Fund are discussed below. Refer to note 12for further information on derivative financial instruments.

15




2 Financial risk management continued

(a) Market risk

Market price risks comprises three components; other price risk, foreign exchange risk and interest rate risk.

(i) Other price risk

Other price risk is the risk that the value of the Fund’s investment portfolio will fluctuate as a result of changes inmarket prices (other than those arising from interest rate risk or foreign currency risk).

Macquarie Australian Equity Income Fund (formerly MQ Buy Write Fund) is exposed to other price risk on all of theinvestments held by the Fund. The Fund’s other price risk is monitored by the Investment Manager on an ongoingbasis and is managed by adopting the following policies to minimise exposure to other price risk.

• Overall portfolio exposure - managed by ensuring that the overall exposure of the portfolio is withinacceptable limits

• Stock limits - manage exposure to any single stock and ensure diversification • Sector limits - manage exposure to any single sector to ensure diversification • Market capitalisation limit - manage exposure to any significant holdings in a single security

Short sales made by the Fund involve certain risks and special considerations. The core investment strategy of theFund is to buy a diversified portfolio of shares and to write options over the shares to generate additional income. TheFund's potential liability is limited to the total value of the shares over which options are written. The use of call optionwriting will then have the effect of capping the upside potential growth in a rising market and may limit the potentialincome which can be generated when markets are not volatile.

The Fund’s equity securities held long and short, whether cash positions or through derivative instruments, aresubstantially all publicly traded. The table below summarises the impact of increases/decreases of the key indices towhich the Fund is exposed. The reasonably possible movements in the risk variables have been determined based onmanagement’s best estimate, having regard to a number of factors, including historical levels of changes in interestrates and foreign exchange rates, historical correlation of the Fund’s investments with the relevant benchmark andmarket volatility. However, actual movements in the risk variables may be greater or less than anticipated due to anumber of factors, including unusually large market shocks resulting from changes in the performance of theeconomies, markets and securities in which the Fund invests. As a result, historic variations in risk variables are not adefinitive indicator of future variations in the risk variables.

16





30 June 2008

Change inmarket index

%

30 June 2008

Impact on operatingprofit/Net assets

attributable to unitholders$

30 June 2007


%

30 June 2007


attribatble to unitholders$

Australia (ASX 200) 5.00 526,155 5.00 424,232

30 June 2008


%

30 June 2008



30 June 2007


%

30 June 2007



Australia (ASX 200) (5.00) (311,880) (5.00) (148,964)

(ii) Foreign exchange risk

The Fund holds both monetary and non-monetary assets denominated in currencies other than the Australian dollar.The foreign exchange risk relating to non-monetary assets and liabilities is a component of price risk. Foreignexchange risk arises as the value of monetary securities denominated in other currencies will fluctuate due to changesin exchange rates.

The table below summarises the Fund’s exposure to foreign exchange risks as at 30 June 2008 and 30 June 2007.

US Dollars

A$30 June 2008

Cash and cash equivalents -

Financial assets held at fair value through profit or loss -

Receivables (21,824)

Distributions payable -

Payables (1,941)

Financial liabilities held at fair value through profit or loss -

(23,765)

17





US Dollar

A$30 June 2007

Payables (13,509)

(13,509)

As the Fund hedges significant foreign exchange risk and had minimal exposures to foreign exchange risk, sensitivityanalysis is not presented, as management consider the risk immaterial. For example, a change of 5% on the exchangerate between Australian dollar/US dollar would have no material impact on the net asset of the Fund.

In accordance with the Fund’s policy, an independent risk management function monitors the Fund’s currency positionon a daily basis.

(iii) Interest rate risk

The Fund is exposed to interest rate risk on its bank and broker balances. However, the majority of the Fund’s financialassets and liabilities are non interest bearing. As a result, the Fund is not subject to significant amounts of risk due tofluctuations in the prevailing levels of market interest rates. The Manager believes there is insignificant interest raterisk in the Fund as the relevant cash balances are due on demand. Any excess cash and cash equivalents areinvested at short term market interest rates.

Interest income and expense may fluctuate in amount, in particular due to changes in interest rates.

(b) Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge its obligation and cause the otherparty to incur a financial loss.

The Fund takes on exposure to credit risk, which is the risk that an issuer or counterparty will be unable or unwilling tomeet a commitment (including payment of amounts arising from derivative contracts) in full when due, that it hasentered into with the Fund. All investment transactions are settled/paid for upon delivery using approved brokers. Therisk of default is considered minimal since delivery of securities sold is only made once the broker has receivedpayment. On a purchase, payment is made once the broker has received the securities. If either party fails to meettheir obligation, the trade will fail.

The Fund is exposed to credit risk on its cash and cash equivalents held and on the derivative contracts held throughapproved brokers. This risk is monitored on an ongoing basis. Financial assets which potentially subject the Fund toconcentrations of credit risk consist principally of bank deposits and balances, assets held with Goldman SachsInternational (the “Prime Broker”), and derivatives where the Prime Broker is the counterparty. The Prime Broker alsoprovides the clearing and depository operations for the Fund’s security transactions. The Prime Broker provides loansand finance to the Fund and, as continuing security for the payment and discharge of all liabilities of the Fund, assetsheld by the Prime Broker will be charged in favour of the Prime Broker.

As at 30 June 2008 the net assets of the Fund, which amount to $ 27,655,997 (2007:$49,147,175), are held with thePrime Broker whose credit ratings issued by the Moody's/S&P at the year end were:

18





2008 2007

Goldman Sachs Aa3 Aa3In accordance with the Fund's policy, the Investment Manager monitors the Fund's credit position on a daily basis.

(c) Liquidity risk

Liquidity risk is the risk that the Fund will encounter difficulty in meeting obligations associated with financial liabilities.

The Fund is exposed to monthly cash redemptions of redeemable units and as a result it primarily holds investmentsthat are traded in an active market and can be readily disposed.

The Fund's listed securities are considered readily realisable. The Fund may invest in derivative contracts traded overthe counter, which are not traded in an organised market and may be illiquid. As a result, the Fund may not be able toquickly liquidate its investments in these instruments at an amount close to their fair value to meet its liquidityrequirements or to respond to specific events such as deterioration in the creditworthiness of any particular issuer orcounterparty.

As of 30 June 2008, the Investment Manager believes that all of its positions are in liquid instruments that can beliquidated without any significant market impact.

The table below analyses the Fund’s financial liabilities, includes gross settled derivative financial liabilities intorelevant maturity groupings based on the remaining period at the balance sheet date to the earliest possiblecontractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balancesdue within 12 months equal their carrying amounts, as the impact of discounting is not significant.

30 June 2008

Less than 1month

$1-6 months

$6-12 months

$

No statedmaturity

$Total

$

Financial liabilities held at fair valuethrough profit or loss 4,628 44,090 - - 48,718

Distribution payable - 5,089,771 - - 5,089,771

Applications received in advance 61,595 - - - 61,595

Other payables - 146,069 - - 146,069

Net assets attributable to unitholders 27,655,997 - - - 27,655,997

Total financial liabilities 27,722,220 5,279,930 - - 33,002,150

30 June 2007

Less than 1month

$1-6 months

$6-12 months

$

No statedmaturity

$Total

$

Financial liabilities at fair value throughprofit or loss 150,884 540,958 - - 691,842

Amount due to broker - 3,038,690 - - 3,038,690

Payable for investments purchased 13,253,544 - - - 13,253,544

Applications received in advance 40,000 - - - 40,000

Other payables - 207,893 - - 207,893

Net assets attributable to unitholders 49,147,175 - - - 49,147,175

Total financial liabilities 62,591,603 3,787,541 - - 66,379,144

19





In accordance with the Fund’s policy, the Investment Manager monitors the Fund’s liquidity position on a continualbasis to enable them to close out of positions at any point in time. Further, prior to any derivative position beingentered into, the relationship between the likely liquidity and the size of the position taken is considered.

(d) Fair value of financial assets and financial liabilities

The carrying amount of all the Fund's financial assets and liabilities included in the balance sheet are a reasonableestimate of their fair value and of the credit risk of these assets and liabilities. Details on how the fair value of financialinstruments is determined are disclosed in note 1(b).

The Fund's operations may result in exposure to fluctuations in commodity prices. Management monitors commodityprices and initiates instruments to manage exposure to these risks when it deems appropriate. Currently, the Fund hasnot initiated any such instruments.

3 Remuneration of Auditors

During the year the following fees were paid or payable for services provided by the auditor of the Fund:

(a) Audit services

2008$

2007$

PricewaterhouseCoopers Australian firm

Auditing and review of financial report 15,866 9,500

Total remuneration for audit services 15,866 9,500

(b) Non-audit services

2008$

2007$

PricewaterhouseCoopers Australian FirmTax compliance services 1,363 10,000

Other 3,960 -

Total remuneration for non-audit services 5,323 10,000

The above costs are paid by the Responsible Entity on behalf of the Fund and recouped through the operatingexpenses of the Fund.

20




4 Net gains/(losses) on financial instruments held at fair value through profit or loss

2008$

2007$

Financial assetsNet gain/(loss) on financial assets designated as at fair value through profit or loss (6,527,844) 12,177,059

Net gain/(loss) on financial assets held for trading 19,050 (107,050)

Net gain/(loss) on financial assets held at fair value through profit or loss (6,508,794) 12,070,009Financial liabilitiesNet gain/(loss) on financial liabilities designated as at fair value through profit or loss (2,477) 4,140

Net gain/(loss) on financial liabilities held for trading 3,803,870 (6,437,244)

Net gain/(loss) on financial liabilities held at fair value through profit or loss 3,801,393 (6,433,104)Foreign currencyNet realised gain/(loss) on foreign currency at fair value through profit or loss (161) 639

Net unrealised gain/(loss) on foreign currency at fair value through profit or loss 2,507 540

Net gain/(loss) on foreign currency at fair value through profit or loss 2,346 1,179

(2,705,055) 5,638,084

5 Net assets attributable to unitholders

Movements in number of units and net assets attributable to unitholders during the year were as follows:

Direct class Indirect classInstitutional

classEmployee

class Total2008

Units2008

Units2008

Units2008

Units2008

UnitsOpening balance at 1 July 1,072,775 212,910 41,378,306 99,023 42,763,014Applications 680,635 1,147,844 - 17,567 1,846,046Redemptions (53,170) (54,467) (14,399,885) (39,648) (14,547,170)

Closing balance at 30 June 1,700,240 1,306,287 26,978,421 76,942 30,061,890

Direct class Indirect classInstitutional

classEmployee

class Total2008

$2008

$2008

$2008

$2008

$Opening balance at 1 July 1,129,838 199,972 47,708,959 108,406 49,147,175Applications 730,000 1,058,512 - 20,000 1,808,512Redemptions (56,829) (52,768) (16,285,000) (43,032) (16,437,629)Increase/(decrease) in net assets

attributable to unitholders (355,312) (213,805) (6,275,942) (17,002) (6,862,061)

Closing balance at 30 June 1,447,697 991,911 25,148,017 68,372 27,655,997

21




5 Net assets attributable to unitholders continued

Direct class

2007Units

Indirect class

2007Units

Multi-Strategyclass

2007Units

Institutionalclass

2007Units

Employeeclass

2007Units

Total

2007Units

Opening balance at 1 July 1,467,050 100,657 18,462,238 - - 20,029,945

Applications 357,430 112,253 9,134,533 41,775,500 99,023 51,478,739

Redemptions (751,705) - (27,596,771) (397,194) - (28,745,670)

Closing balance at 30 June 1,072,775 212,910 - 41,378,306 99,023 42,763,014

Direct class

2007$

Indirect class

2007$

Multi-Strategyclass

2007$

Institutionalclass

2007$

Employeeclass

2007$

Total

2007$

Opening balance at 1 July 1,337,093 81,866 15,374,232 - - 16,793,191

Applications 344,396 98,000 7,707,556 41,775,500 100,000 50,025,452

Redemptions (713,141) - (23,379,275) (415,000) - (24,507,416)

Increase/(decrease) in net assetsattributable to unitholders 161,490 20,106 297,487 6,348,459 8,406 6,835,948

Closing balance at 30 June 1,129,838 199,972 - 47,708,959 108,406 49,147,175

As stipulated within the Fund Constitution, each unit represents a right to an individual share in the Fund and does notextend to a right to the underlying assets of the Fund. Multi-Strategy class was closed in April 2007.

Capital risk management

The Fund manages its net assets attributable to unitholders as capital, notwithstanding net assets attributable tounitholders are classified as a liability. The amount of net assets attributable to unitholders can change significantly ona daily basis as the Fund is subject to daily applications and redemptions at the the discretion of unitholders.

The Fund monitors the level of daily applications and redemptions relative to the liquid assets in the Fund. The Fundwill generally pay the the redemption proceeds from withdrawal requests within 5 business days after the determinationof the unit price. The unit price is generally determined within 15 business days of the first business day of the monthfollowing the month in which the withdrawal request was received.

The Fund may extend the period for processing a withdrawal in certain circumstances such as if:

• the Fund has taken all reasonable steps to realise sufficient assets to satisfy a withdrawal request but is notable to do so

• the Fund believes it is not in the best interests of investors as a whole to realise assets; or• the Fund is unable to calculate the redemption price or fairly determine the Net Asset Value due to one or

more circumstances outside the Fund's control.

If the Fund becomes illiquid (as defined in the Corporations Act), withdrawals will only be allowed if the Fund makes an

22




5 Net assets attributable to unitholders continuedoffer of withdrawal. If the Fund makes an offer of withdrawal, unitholders may only be able to withdraw part of theirinvestment.

If the Fund receives withdrawal requests comprising more than 5% of the Units on issue in a Class, the Fund may pro-rata the withdrawal requests and stagger the processing of remaining unsatisfied withdrawal requests.

The ratio of liquid assets to net applications/(redemptions) at 30 June 2008 and 30 June 2007 were as follows:

2008 2007

Average monthly applications/(redemptions) (1,219,093) 2,126,503

Liquid assets of the Fund 31,321,806 60,339,164

Net assets attributable to unitholders 27,655,997 49,147,175

Ratio of liquid assets to net assets attributable to unitholders (%) 113 123

6 Distributions to unitholders

The distributions paid/payable were as follows:

2008$

2007$

Distribution payable at beginning of year (1 July) - 5,809,812

Paid during the period - (5,809,812)

Provided for during the year 5,089,771 -

Balance payable at the end of the year 5,089,771 -

Distribution amounts and cents per unit for the different classes of the Fund are listed below:

2008

Distribution

2008

CPU

2007

Distribution

2007

CPU

Direct class 266,432 15.67 - -

Indirect class 182,550 13.97 - -

Institutional class 4,628,206 17.16 - -

Employee class 12,583 16.35 - -

7 Cash and cash equivalents

2008$

2007$

Cash at bank 329,287 183,042

Money market instruments 100,032 73,317

429,319 256,359

23




8 Financial assets held at fair value through profit or loss

2008$

2007$

Held for tradingFutures contracts 217,700 -Designated at fair value through profit or lossListed equity securities 30,892,487 60,082,805

Total 31,110,187 60,082,805

9 Financial liabilities held at fair value through profit or loss

2008$

2007$

Held for tradingOptions 48,718 691,842

Total 48,718 691,842

10 Receivables

2008$

2007$

Dividend receivable 250,687 323,669

Interest receivable 10,596 12,374

Receivable from investments sold - 5,685,336

Other receivables 12,041 18,601

Amount due from brokers 1,189,320 -

1,462,644 6,039,980

11 Payables

2008$

2007$

Management fee payable 143,816 204,589

Payable for investments purchased - 13,253,544

Amount due to prime brokers - 3,038,691

Interest payable 312 1,903

Application monies received in advance 61,595 40,000

Other payables 1,941 1,400

207,664 16,540,127

24




12 Derivative financial instruments

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

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

Derivative transactions include a wide assortment of instruments, such as forwards, futures and options. Derivativesare considered to be part of the investment process. The use of derivatives is an essential part of the Fund’s portfoliomanagement. Derivatives are not managed in isolation. Consequently, the use of derivatives is multifaceted andincludes:

• hedging to protect an asset or liability of the Fund against a fluctuation in market values or to reduce volatility• a substitution for trading of physical securities• adjusting asset exposures within the parameters set in the investment strategy, and adjusting the duration of fixed

interest portfolios or the weighted average maturity of cash portfolios.

While derivatives are used for trading purposes, they are not used to gear (leverage) a portfolio. Gearing a portfoliowould occur if the level of exposure to the markets exceeds the underlying value of the Fund.

The Fund holds the following derivative instruments:

(i) FuturesFutures are contractual obligations to buy or sell financial instruments on a future date at a specified price establishedin an organised market. The futures contracts are collateralized by cash or marketable securities. Changes in futurescontracts’ values are usually settled net daily with the exchange. Interest rate futures are contractual obligations toreceive or pay a net amount based on changes in interest rates at a future date at a specified price, established in anorganised financial market.

(ii) OptionsAn option is a contractual arrangement under which the seller (writer) grants the purchaser (holder) the right, but notthe obligation, either to buy (a call option) or sell (a put option) at or by a set date or during a set period, a specificamount of securities or a financial instrument at a predetermined price. The seller receives a premium from thepurchaser in consideration for the assumption of future securities price. Options held by the Fund are exchangetraded. The Fund is exposed to credit risk on purchased options to the extent of their carrying amount, which is theirfair value. Options are settled on a gross basis.

As at year end, the Fund held for trading the following outstanding derivative financial instruments:

30 June 2008Maturity

Contract/notional

$

Fair value ofassets

$

Fair value ofliabilities

$

SPI 200 Futures 30/09/08 (6,101,775) 217,700 -

217,700 -

25




12 Derivative financial instruments continued

An overview of the risk exposure relating to derivatives is included in note 2.

13 Related party transactions

(a) Responsible Entity

The Responsible Entity of Macquarie Australian Equity Income Fund (formerly MQ Buy Write Fund) is MQ PortfolioManagement Limited, a wholly owned subsidiary of Macquarie Bank Limited (MBL) which in turn is a wholly ownedsubsidiary of Macquarie Group Limited. The registered office of the Responsible Entity is No. 1 Martin Place, SydneyNSW 2000.

The Responsible Entity does not hold any units in the Fund.

(b) Key management personnel

(i) Directors

Key management personnel includes persons who were Directors of MQ Portfolio Management Limited at any timeduring the financial year and since the end of the year up to the date of this report and are as follows:

Names Appointed/resigned

Ottmar WeissGregory John Mackay Resigned 19 September 2008Bruce Neil TerryJames Kimberly Burke Resigned 25 September 2007Gervaise Robert John Heddle Appointed 1 November 2007

No fees or other compensation were paid out of Fund property to the directors of the Responsible Entity during theyear. There were no units held by parties related to the Fund except as detailed below.

(ii) Other key management personnel

There were no other persons with responsibility for planning, directing and controlling the activities of the Fund, directlyor indirectly during the financial year.

26




13 Related party transactions continued

(c) Related party schemes' unitholdings

Parties related to the Fund (including schemes managed by MQ Portfolio Management Limited), held units in the Fundas follows:

Class ofUnits

No. of unitsheld at year

end

(units)

Interestheld at year

end

(%)

No. of unitsacquired

during year

(units)

No. of unitsdisposed

during year

(units)

Distributionspaid by the

Fund duringyear

($)

30 June 2008Unitholders

Ottmar Weiss (director of the Responsible Entity) Direct class 275,270 0.91 - - 43,136

Gregory John Mackay (director of the Responsible Entity) Direct class 289,285 0.96 - - 45,332

Macquarie Equity Enhanced Income FundInstitutionalclass 26,978,421 89.11 - 14,399,885 4,628,202

Class ofunits

No. of unitsheld at year

end

(units)

Interestheld at year

end

(%)

No. of unitsacquired

during year

(units)

No. of unitsdisposed

during year

(units)

Distributionspaid by the

Fund duringyear

($)

30 June 2007Unitholders

Ottmar Weiss (director of the Responsible Entity)Indirectclass 275,270 0.52 - - -

Gregory John Mackay (director of the Responsible Entity)Indirectclass 289,285 0.55 - - -

Bruce Terry (director of the Responsible Entity) - - - 151,079 -

Macquarie Equity Enhanced Income FundInstitutionalclass 41,378,306 97.00 41,775,500 397,194 -

27




13 Related party transactions continued

(d) Responsible Entity's fees and other transactions

Aggregate amounts included in the determination of profit from ordinary activities before related income tax thatresulted from transactions with each class of other related parties:

2008$

2007$

Interest income - MBL related entities 45,509 71,841

All related party transactions are conducted on normal commercial terms and conditions. The transactions during theperiod between the Fund and the Responsible Entity are listed below:

2008$

2007$

Management fee expense incurred by the Fund 638,328 1,128,585

Performance fee expense incurred by the Fund - 97,822

Per the Product Disclosure Statement, the Responsible Entity is entitled to receive management fees of 0.95% per annum, calculated by reference to the monthly net assets (excluding net assets attributable to unitholders) of the Fund.Up until 31 March 2007, this fee was 1.15% per annum.

Up until 31 March 2007, the Responsible Entity was also entitled to receive 20% of the returns over the relevant Trustsbenchmark subject to High Water Mark accrued daily. There are no Performance fees charged from March 2007onwards.

Aggregate amounts receivable from, and payable to, each class of other related parties at balance date:

2008$

2007$

Current assetsMBL related parties (cash) 429,319 256,359

MBL related entities (interest receivable) 3,567 488Current liabilitiesMBL related entities (management and performance fees payable) 143,816 204,589

(e) Other transactions within the Fund

Apart from those details disclosed in this note, no Directors have entered into a material contract with the Fund sincethe end of the previous financial period and there were no material contracts involving director's interests existing atperiod end.

28




14 Reconciliation of profit/(loss) to net cash inflow/(outflow) from operating activities

(a) Reconciliation of profit/(loss) to net cash inflow/(outflow) from operating activities

2008$

2007$

Profit/(loss) for the year before financing costs (1,772,290) 6,835,948

Proceeds from sale of financial instruments held at fair value through profit or loss 65,791,675 139,406,771

Purchase of financial instruments held at fair value through profit or loss (51,965,802) (164,111,547)

Net (gain)/ loss on financial instruments held at fair value through profit or loss 2,705,056 (5,638,084)

Changes in assets and liabilities

(Increase)/decrease in dividends receivable 72,982 (214,064)

(Increase)/decrease in interest receivable 1,778 (12,374)

(Increase)/decrease in other receivable 6,560 2,875,959

Increase/(decrease) in management fee payable (60,773) 73,551

Increase/(decrease) in other payable (1,050) 3,167

Net cash inflows/(outflows) from operating activities 14,778,136 (20,780,673)

(b) Non-cash financing activities

During the year, the following distribution payments were satisfied by the issue of units under the distributionreinvestment plan.

- -

As described in note 1(i), income not distributed is included in net assets attributable to unitholders. The change inthis amount each year (as reported in (a) above) represents a non-cash financing cost as it is not settled in cashuntil such time as it becomes distributable (ie taxable).

15 Segment reporting

The Fund is organised into one main segment which operates solely in the business of investment management withinAustralia. Consequently, no segment reporting is provided in the Fund's financial report.

While the Fund operates from Australia only (the geographical segment), the Fund has investment exposures indifferent countries as listed below.

29




15 Segment reporting continued

2008

Total assets$

2008

Percentage oftotal assets

%

2007

Total assets$

2007

Percentage oftotal assets

%Geographical exposureAustralia 31,403,524 95.15 59,748,794 90.01

Hong Kong 1,450,603 4.40 6,021,379 9.07

New Zealand 148,023 0.45 - -

United States of America - - 608,971 0.92

Total 33,002,150 100.00 66,379,144 100.00The above disclosures have been prepared on the basis of the Fund's direct investments and not on a look-throughbasis for investments held indirectly through unit trusts.

To determine the geographical segment for financial instruments the following rules have been applied:

• Listed non-monetary financial instruments (excluding derivatives) – place of primary listing;• Unlisted non-monetary financial instruments (excluding derivatives) – place of incorporation of the issuer;• Derivatives – place of registration of the counterparty or if traded on an active market, place of stock exchange; and• Monetary financial instruments – place of incorporation of the debtor.

The above investments are classified on the balance sheet as at fair value through profit or loss.

16 Events after the balance sheet dateThe Fund changed its name from MQ Buy Write Fund to Macquarie Australian Equtiy Income Fund on 1 July 2008.

On 19 September 2008, Gregory John Mackay resigned as a director of MQ Portfolio Management Limited.

No other significant events have occurred since balance date which would impact on the financial position of the Funddisclosed in the balance sheet as at 30 June 2008 or on the results and cash flows of the Fund for the year ended onthat date.

17 Contingent liabilities and contingent assets

The Fund has no outstanding contingent assets, contingent liabilities or commitments as at 30 June 2008 and 30 June2007.

30

Macquarie Australian Equity Income Fund (formerly MQBuy Write Fund)

Director's declaration

The Directors of MO Portfolio Management Limited declare that the financial report and notes of the Fund set out on pages5 to 30:

(a) comply with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reportingrequirements; and

(b) give a true and fair view of the Fund's financial position as at 30 June 2008 and of its performance, as representedby the results of its operations, changes in equity and its cash flows, for the financial year ended on that date.

In the Directors' opinion:

(a) the financial statements and notes are in accordance with the Corporations Act 2001 and the Fund Constitution;and

(b) there are reasonable grounds to believe that the Fund will be able to pay its debts as and when they become dueand payable.

This declaration is made in accordance with a resolution of the Directors.

D;c"toc .m.. .i~~;,~ .~~~~~. ~~;;~ed;'; .....

SydneyDated 25 September 2008

31

Documents

Macquarie Australian Equity Income Fund …...MQ Portfolio Management Limited, as Responsible Entity of the Fund, is entitled to fees for so acting. Macquarie Bank Limited and its