Financial Services Group
Chairman's and Managing Director's Report

Highlights of Financial Services Group's year included Macquarie Wrap Solutions generating net inflows of $A5.1 billion, recording the highest inflows of all Australian Wrap platforms in 2005, the Group ranking as one of the top three retail stockbrokers in Australia and the Adviser Services team named Assirt Service Level Survey Best Fund Manager for the third consecutive year.

This year we expect to continue to grow annuity income, develop new businesses and to expand selectively in international markets.

Profit from the Financial Services Group (FSG) was 33 per cent up on 2005, due to strong inflows into Macquarie Wrap Solutions and the Macquarie Cash Management Trust (CMT), the diversification of the business model and strong equity markets.

FSG has doubled its profit during the past two years, excluding the sale of the Group's interest in its South African joint venture in 2004.

FSG continues to bring innovative, unique investment opportunities to our clients and expand our service and administration offering to intermediaries. We are pursuing Australian and international growth opportunities and have sought to diversify our businesses to ensure we have some insulation should the market soften.

Macquarie Adviser Services (MAS)

The Macquarie Professional Series, our third party managed fund distribution business, was well received by investors, with four additional funds added during the year. It had $A814 million in funds under management at 31 March 2006, 12 months after its launch.

Coin Software, a leading financial planning software business, was acquired in June 2005, and has since doubled client numbers to 160.

Macquarie Financial Services (MFS)

In 2005, MFS maintained its position as one of  Australia's top three retail stockbrokers and continued to grow adviser and client numbers.

MFS benefited from favourable underwriting and broking volumes and we launched our first Asian retail broking operation, TMB Macquarie Securities (Thailand) Limited, a joint venture with leading Thai bank, TMB.

Assets

The Group's total assets under administration, advice and/or management grew 29 per cent to $A56.2 billion from $A43.5 billion during the year.

The major contributors to this growth included Wrap funds under administration, up 36 per cent to  $A19.2 billion from $A14.1 billion. Macquarie Wrap recorded the highest net inflows for the 2005 calendar year ( ASX S&P Market Share Report).

The CMT was up by 13 per cent to $A12.0 billion from $A10.6 billion. The CMT has the largest share of funds under management and is the market leader in Cash Management Trusts (Plan for Life).

Superannuation funds under management increased 31 per cent to $A16.4 billion and Macquarie Private Bank and Macquarie Private Portfolio Management increased funds under management and advice 64 per cent to $A1.8 billion from $A1.1 billion. New Zealand asset manager, Brook Asset Management, in which FSG has a 49 per cent holding, increased its funds under management by 35 per cent.

The Group also launched Macquarie Insurance, an on-line life, disability and income insurance platform which allows intermediaries to use straight-through processing to simplify the insurance process.

Outlook

FSG continues to look for growth opportunities, in Australia and internationally, that support and develop our existing strengths.

The broking business remains influenced by market sentiment. Subject to generally favourable market conditions, we expect to continue growing annuity income sources and to further develop new businesses such as the Macquarie Professional Series and Macquarie Insurance.