EXCHANGE TRADED FUNDS.

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1 03 September 2015 July Quarter 2015 EXCHANGE TRADED FUNDS. Nathan Umapathy ABRIDGED Opinion Piece: Seeking high yield through ETFs An efficient alternative to boost dividend income in an investment portfolio would be to include a High Yielding Exchange Traded Funds. Exchange Traded Funds have made it extraordinarily easy to gain a diversified, cost and tax effective portfolio of high yielding assets. Presently, there are 8 Exchange Traded Funds offering domestic high yield exposure listed on the ASX. Each Exchange Traded Fund applies a quantitative and qualitative overlay that has certain nuances. Therefore, we have presented this report to highlight the key differentiators between these Exchange Traded Funds. (continued page 2). Market Update Exchange Traded Product (ETP) global assets under management grew 6.0% to US$2.945tn over the last six months. Net new inflows delivered US$146.1bn, an 18.2% increase from prior corresponding period - with a strong 1Q15 before momentum slowed in 2Q15. (continued page 7). ETFs: Own the index in a single listed security Key attributes: Inside this edition Opinion Piece Market update Summary Information Index Opinion Piece 2 Market Update 7 ETF Summary Information 9 Domestic ETFs 10 International ETFs 11 FI, Commodity and Currency ETFs 13 Appendix A: How ETFs work 14 Appendix B: Physical versus Synthetic 15 Appendix C: International Exchange Opening Hours 16 Appendix D: Market Making Quoting Obligations 17 Appendix E: Glossary 18 Simple, liquid and flexible way to secure exposure to a specific index, sector, fixed income, commodity or currency; Low fees as compared to Managed Funds (Domestic Equity Management Expense Ratio (MER) bp, International Equity MER 7-72 bp, Fixed Income MER bp, Cash MER 18 bp, Commodity MER bp, Currency MER 45 bp, Other MER 119 bp); Distribute dividends or coupons based on the underlying investments including franking credits, interest, and capital gains on a proportional basis; Trade at or very close to their net asset value and exhibit less investment manager or individual security risk; Own a claim to the underlying shares in the portfolio that are held with a custodian. There are also key risks investors must consider. These include managing currency exposure (international, commodities) and overall share market risk, based on various economic conditions and global events. Bell Potter Securities Limited info@bellpotter.com.au ABN AFSL no

2 EXCHANGE TRADED FUNDS. 2 Opinion Piece Seeking high yield through ETFs The recent months have continued to present challenges for the Australian equity market. And while concerns in Europe seems to have eased a little, the uncertainty of an interest rate rise in US and a slowdown in the Chinese economy have all been a key catalyst over the recent slump on the ASX200. Although investors are understandably anxious of the current stock market, the desire for yield remains unabated. The potential of the RBA to cut rates further in attempt to counter any interest rate changes done in US would mean that term deposits would no longer be the yield-delivering mechanism that investors crave for. A much more efficient alternative to boost dividend income in an investment portfolio would be to include a High Yielding ETF. Structurally similar to an index fund but listed on the ASX, ETFs have made it extraordinarily easy to gain a diversified, cost and tax effective portfolio of high yielding assets. Presently there are 8 ETFs offering domestic high yield exposure listed on our exchange. Therefore, we have presented this report to highlight the key differentiators between these ETFs. With respect to its relative investment methodology, we have categorised the 8 Domestic ETFs into 2 broad categories an Index Driven ETF, which tracks an Index of top yielding ASX companies, and a Style Driven ETF, which employs a quasi active investment strategy to enhance yield. Index Driven ETF There are 6 ETFs offering a diversified portfolio of high yield assets exposure under this category. These listed securities trade under the following ASX codes IHD (ishares), RDV (Russell), SYI (State Street), VHY (Vanguard), DIV (UBS) and ZYAU (ANZ). Each index applies a quantitative and qualitative overlay that has certain nuances. Analysis of sector exposures as compared against the ASX200 notes: IHD has substantial overweight positons in Materials, Telecommunications, Energy, Utilities and the lowest exposure to Financials; RDV has the largest exposure to Financials however is materially underweight in Materials and Health Care; VHY has a substantial overweight position in both Utilities and Consumer Discretionary; SYI has the lowest exposure to Industrials; DIV is substantially overweight in Consumer Discretionary and has zero Telecommunication exposure; ZYAU is the only ETF with an overweight position in Industrials and has no Consumer Staples exposure. Other key notes from these 6 High Yield ETFs: RDV has the lowest historical yield (5.11%) while SYI has the highest historical yield (7.17%); Average historical yield amongst the 5 ETFs (ZYAU only recently listed) is 6.3%; VHY has the lowest management fee (25bp) while DIV has the highest management fee (70bp); DIV s portfolio is rebalanced quarterly while the other 5 ETFs is rebalanced semi annually; Both VHY and DIV has the largest dispersion of securities with the largest focus outside the ASX50; ZYAU is the only ETF that doesn t hold any of the big four banks. All six ETFs are fully replicated, with the underlying investments held with a custodian in a segregated account. Please be aware this analysis is based on historical data which will change with the recalibration of the underlying indices and natural oscillations of the market.

3 EXCHANGE TRADED FUNDS. 3 Opinion Piece (continued) Description ASX Code IHD RDV SYI Manager ishares Russell Investments State Street Index Methodology The Index employs a yield driven weighting scheme while providing diversification across individual stocks and sectors. Stocks need to have a market cap of above $500m with a 6 month Average Daily Volume Traded of $2m before a stability filter is applied, which looks at dividend consistency and price momentums. The Index aims to deliver income through higher dividends and franking credits, plus capital growth to investors through a diversified portfolio of blue chip Australian shares. The Index has a bias toward those that have a high expected dividend yield but also meet other characteristics including; a history of paying high dividends; dividend growth and consistent earnings. The Index targets Australian companies with high dividend yields that are both sustainable and persistent. Index construction starts with a dividend screening process: only securities with a track record of consistent dividend payments and with the capacity to sustain dividend payouts into the future are eligible index constituents. From this list of eligible companies, the index selects only those with higher than average dividend yields. Exposure Constraints 10% per security 30-40% per sector n/a n/a 10% per security n/a Metrics Historical Yield (LTM) Franking (LTM) Gross Yield (LTM) Distribution Freq Indirect Cost Ratio Portfolio Rebalance 6.03% 46.50% 7.20% Quarterly 0.30% Semi-Annual 5.11% 80.30% 6.90% Quarterly 0.34% Semi-Annual 7.17% 56.60% 8.90% Quarterly 0.35% Semi-Annual Number of Holdings Top 10 Sector Exposure Georgraphic Exposure BHP Billiton 10.0% Commonwealth Bank 15.8% Westpac Bank 9.7% Telstra 9.9% Westpac 15.6% Commonwealth Bank 9.5% Commonwealth Bank 8.8% ANZ Bank 15.4% ANZ Bank 9.1% Rio Tinto 8.2% Telstra Corporation 12.2% BHP Billiton 8.0% Wesfarmers 7.6% National Australia Bank 6.0% Suncorp Group 4.9% Woodside Petroleum 7.6% BHP Billiton 4.1% Telstra 4.7% Westpac 7.4% Suncorp Group 3.8% Amcor 4.7% National Australia Bank 6.4% Wesfarmers 3.5% Woodside Petroleum 4.6% ANZ Bank 6.3% IAG 2.6% National Australia Bank 4.6% Spark NZ 2.7% BEN Bank 2.3% Woolworths 4.6% Data as at 31/07/2015 Data as at 30/06/2015 Data as at 31/07/2015 Financials 35.8% Financials 52.1% Financials 50.1% Materials 21.8% Materials 7.3% Materials 15.4% Industrial 4.6% Industrial 6.5% Industrial 2.1% Consumer Staples 7.8% Consumer Staples 8.3% Consumer Staples 8.9% Health Care 1.2% Health Care 0.5% Health Care 2.4% Telecom Serv 12.9% Telecom Serv 7.0% Telecom Serv 4.7% Energy 8.7% Energy 4.9% Energy 5.2% Consumer Discretionary 1.8% Consumer Discretionary 4.8% Consumer Discretionary 4.3% Utilities 4.1% Utilities 4.2% Utilities 6.5% IT 0.0% IT 0.0% IT 0.4% Other 0.0% Other 4.4% Other 0.0% Data as at 31/07/2015 Data as at 30/06/2015 Data as at 31/07/2015 Australia 100.0% Australia 100.0% Australia 100.0%

4 EXCHANGE TRADED FUNDS. 4 Opinion Piece (continued) Description ASX Code VHY DIV ZYAU Manager Vanguard UBS ANZ ETFS Index Methodology Market capitalisation weighted index comprising of companies with a higher forecast div yield, relative to other companies listed on the ASX. A-REITS and securities that are not forecast to pay dividends over the next 12 months are excluded from the Index. Then the securities with the highest forecast div yields which make up 50% of the floatadjusted market capitalisation of the Index are selected. The Index is a rules-based customised index of listed Australian securities that have Buy or Neutral UBS Research rating. The index screens for securities through its financial statement filters and forecast divided yield filter, while excluding securities with nil dividends or securities with a high probability of default. The Index is designed to measure the performance of the top 40 companies in the ASX 300 with the highest shareholder yields. The index screens for companies with a minimum three-month Average Daily Value Traded of AUD 1 mil; a Free Cash Flow to Equity of at least the total cash paid for common dividend and common share repurchases; a positive div payout and a non-negative DPS growth. Exposure Constraints 10% per security 40% per sector Not Disclosed 10% per security n/a Metrics Historical Yield (LTM) Franking (LTM) Gross Yield (LTM) Distribution Freq Indirect Cost Ratio Portfolio Rebalance 6.86% 57.80% 8.60% Quarterly 0.25% Semi-Annual 6.26% 66.31% 8.00% Quarterly 0.70% Quarterly n/a n/a n/a Quarterly 0.35% Semi-Annual Number of Holdings Top 10 Sector Exposure Georgraphic Exposure Telstra n/a Commonwealth Bank 10.9% Woodside Petroleum 10.4% ANZ Bank n/a ANZ Bank 9.8% Telstra 10.3% National Australia Bank n/a Westpac 7.6% BHP Billiton 9.4% Rio Tinto n/a Wesfarmers 7.4% AMP 8.9% BHP Billiton n/a Woodside 5.2% Amcor 7.6% Westpac n/a Rio Tinto 5.2% Sydney Airport 5.7% Commonwealth Bank n/a AGL 3.4% Lend Lease Group 4.2% Tabcorp Holdings n/a Sonic Healthcare 2.9% Stockland 4.1% Duet Group n/a Bank of Queensland 2.8% ASX 3.4% Spark Infrastructure n/a Bendigo and Adelaide Bank 2.5% Goodman Group 3.2% Data as at 30/06/2015 Data as at 30/06/2015 Data as at 31/07/2015 Financials 41.9% Financials 38.8% Financials 38.2% Materials 19.3% Materials 14.0% Materials 19.5% Industrial 6.1% Industrial 3.7% Industrial 8.1% Consumer Staples 0.9% Consumer Staples 7.4% Consumer Staples 0.0% Health Care 0.0% Health Care 5.8% Health Care 4.9% Telecom Serv 10.2% Telecom Serv 0.0% Telecom Serv 10.5% Energy 2.1% Energy 5.2% Energy 10.4% Consumer Discretionary 11.5% Consumer Discretionary 16.6% Consumer Discretionary 5.5% Utilities 8.0% Utilities 6.2% Utilities 1.9% IT 0.0% IT 0.0% IT 1.0% Other 0.0% Other 2.3% Other 0.0% Data as at 30/06/2015 Data as at 30/06/2015 Data as at 31/07/2015 Australia 100.0% Australia 100.0% Australia 100.0%

5 EXCHANGE TRADED FUNDS. 5 Opinion Piece (continued) Style Driven ETF BetaShare s YMAX and HVST have a slightly more sophisticated strategy than traditionally investing in your top yielding companies. YMAX provides shareholders an exposure to the ASX20 with a dividend income that exceeds the dividend income of the Portfolio of underlying stocks. This yield enhancer comes from the additional premium the portfolio receives from selling covered calls options over up to 100% of the Portfolio. Other key notes on YMAX: The amount of option premiums in the Fund receives from writing covered call options depends on, among other factors, the expected volatility of the price of the Securities; The higher the expected volatility, the higher the option premiums; YMAX has the ability to outperform a traditional S&P/ASX 20 Buy/Hold strategy in a period of above average volatility, particularly in a falling, flat or moderately rising market. While, HVST is an equity income strategy, which seeks to maximise dividend yield by investing in a portfolio of dividend paying Australian equities. HVST has an additional investment objective to cushion downside risk and manage the volatility of the fund by selling equity futures contracts (i.e. ASX SPI 200 futures). Other key notes on HVST: HVST will provide exposure to 14 or more securities; The portfolio will generally consist of large capitalisation Australian securities; The portfolio is rebalanced approximately every two months in order to obtain the next paying dividend ( dividend harvest strategy) and to comply with the 45 day rule (in order to receive franking credits); At each portfolio rebalance, BetaShares will identify the largest 50 securities, by market capitalisation, listed on the ASX, that are expected to give the holder an entitlement to the dividend and which exceeds a minimum gross yield threshold. Securities are then ranked from highest to lowest based on expected gross yield, which is based on declared dividends or Bloomberg analyst consensus; May invest in one or more domestic broad based ETF if fewer than 14 stocks meet its minimum yield and market capitalisation screens. Overall, it is important to note that both these ETFs are aimed to generate income rather than capital growth. Therefore, these ETFs has the capacity to underperform during a strong bull market. Please be aware this analysis is based on historical data which will change with the recalibration of the underlying indices and natural oscillations of the market. Finally, the message in all this is that you will have to consider a range of characteristic, including sector concentration, portfolio structure/constrains, index methodology, and fees before deciding which high yield ETF is best suited for you.

6 EXCHANGE TRADED FUNDS. 6 Opinion Piece (continued) Description ASX Code Manager Investment Strategy YMAX BetaShares The Fund provides exposure to a portfolio of the ASX 20, with the added benefit of enhanced dividend yield, downside protection and lower total return volatility. The Fund achieves this by writing covered call options over up to 100% of the Portfolio, which provides option premiums and an additional source of income, and a partial hedge against a decline in the value of the Portfolio. HVST BetaShares The Fund s portfolio will generally consist of large cap Australian stocks selected from amongst 50 largest stocks, by market cap. The fund will adopt a dividend harvest strategy which is aimed at maximising exposure to dividend paying equity securities. Harvester also has a risk-managing mechanism which manages the volatility of the fund and cushion downside risk by selling equity futures contract. Exposure Constraints n/a n/a 9% per securities n/a Metrics Historical Yield (LTM) Franking (LTM) Gross Yield (LTM) Distribution Freq Indirect Cost Ratio Portfolio Rebalance 8.78% 34.00% 10.10% Quarterly 0.79% Quarterly 7.72% 62.00% 9.80% Monthly 0.90% Every 2 months Number of Holdings Top 10 Sector Exposure Georgraphic Exposure Commonwealth Bank 15.3% Transurban Group 9.7% Westpac Bank 11.1% Stockland 9.5% ANZ Bank 9.8% Sydney Airport 9.3% National Australia Bank 9.6% Commonwealth Bank 6.9% BHP Billiton 9.6% Westpac Bank 5.3% Telstra 8.3% BHP Billiton 4.8% Wesfarmers 4.9% ANZ Bank 4.6% CSL 4.5% National Australia Bank 4.5% Woolworths 3.8% Telstra 3.8% Macquarie Group 3.0% Wesfarmers 2.5% Data as at 30/06/2015 Data as at 30/06/2015 Financials 60.5% Financials 43.2% Materials 12.1% Materials 11.3% Industrial 1.8% Industrial 22.8% Consumer Staples 8.6% Consumer Staples 5.0% Health Care 4.2% Health Care 4.5% Telecom Serv 8.3% Telecom Serv 0.0% Energy 4.5% Energy 3.8% Consumer Discretionary 0.0% Consumer Discretionary 0.0% Utilities 0.0% Utilities 0.0% IT 0.0% IT 0.0% Other 0.0% Other 0.0% Data as at 30/06/2015 Data as at 30/06/2015 Australia 100.0% Australia 100.0%

7 EXCHANGE TRADED FUNDS. 7 Market Update Exchange Traded Product (ETP) global assets under management grew 6.0% to US$2.945tn over the last six months. Net new inflows delivered US$146.1bn, an 18.2% increase from per corresponding period - with a strong 1Q15 before momentum slowed in 2Q15. Figure 1: Global ETF Assets and Global Spread of FUM (US$b) 4,000 3,000 2,000 1,000 0 Equity Fixed Income Commodities Other Source: Blackrock data Much of the global equity net inflows were supported by Non-US Developed Markets, mainly Europe and Japan, with investors taking advantage of their attractive valuations in relative to the US. While outflows were largely driven by strong redemptions in China and from Large Capitalisation US Equity. Fixed Income continued its momentum from 2014 with a relatively strong period, benefiting from the debt uncertainty surrounding Europe. However, we began to see more redemptions towards the end as investors shift focus to holding more equity based funds. Commodities ETFs also had a relatively soft six months buffeted by low precious metal prices. Despite a lacklustre period in Australian equities, the Australian ETF sector had a solid six month growth with FUM rising 21.5% to $18.3bn. This was driven by another strong period of net inflows along with an influx of new products. Net inflows saw a healthy $2.7bn over the last six months, consistent as per corresponding period. Unsurprisingly, the bulk of the net flows were driven by equity related products, with international products accounting for $1.1bn and domestic equity raking in an impressive $1.2bn. Interesting to note, we did see a slight dip in terms of net flows for International products compared to per corresponding period while domestic equity is on track to outperform any previous highs for the year. Figure 2: Australian Spread of FUM, Top 5 Inflow and Outflows (Half Year) Domestic Equity Total (46%) Intern. Equity Total (39.6%) Fixed Income (4.7%) Cash (3.9%) Currency (2.3%) Commodity (3.4%) Top 5 Inflows Top 5 Outflows STW $410.5m GOLD -$45.0m VAS $192.8m ISO -$26.1m IEU $179.4m RDV -$24.4m VEU $145.7m IZZ -$16.2m VTS $126.9m SPY -$16.1m Source: ASX data and Bell Potter data Domestic equity was yet again supported by strong flows into low cost products with the three Vanguard ETFs VAS (MSCI/ASX300), VAF (Fixed Interest) and VAP (S&P/ASX 300 Property) accruing $404m between them over the last six months. Astonishingly State Street s market behemoth STW had a stunning period, amassing a whopping $411m. High Yield products RDV (Russell High Dividend) and SYI (State Street High Dividend) and Small Cap ETFs ISO (ishares AXS Small Ordinaries) and SSO (State Street Small Ordinaries) dominated top outflows, totalling $57m.

8 EXCHANGE TRADED FUNDS. 8 Market Update (continued) International flows saw investors playing Europe as an investment thematic. IEU (ishares Europe 350) being the only pure Europe ETF on the ASX, received $179m of net new flows over the last six months. Vanguard s cost effective regional international solution (VTS and VEU) also appeared to resonate with investors, accruing $273m in aggregate. Meanwhile, ishare s Global Healthcare ETF (IXJ) benefited from a sector, that is poorly represented on the ASX, as it accrued an impressive $105m. Net inflows for fixed income ETFs highlighted a slowdown in this sector as it gather $250m, only half the amount from the previous six months. Apart from Vanguard s VAF (Fixed Interest) and VGB (Government Bonds), the rest of the flows were relatively sedate across a broad number of ETFs and providers. It appears investors were shifting their focus to more equity based funds to capitalise on a weak stock market. Commodities had a slightly better period with $15m in new inflows. At the expense of higher cost ETFs, there was arguably a shift in strategy with gold ETFs as Perth Mint Gold (Synthetic Gold) benefited from the outflows from ETF Securities Gold (Physical Gold). Inflows were also driven by BetaShares OOO (Synthetic WTI Crude Oil), as investors take advantage of the dramatic drop in oil prices. Currency had another good period dominated by USD which contributed $71.8m net inflow. Figure 3: Spread of Fees and Market Share Amongst ETF Providers ishares (38.1%) StateStreet (27.3%) BetaShares (13.8%) Vanguard (10.4%) ETF Securities (4.7%) Russell (3.9%) UBS (1%) Market Vectors (0.7%) Perth Mint (0.2%) ANZ ETF (0%) ishares (36%) StateStreet (24.3%) Vanguard (20.8%) BetaShares (10.4%) Russell (3.4%) ETF Securities (2.6%) Market Vectors (1%) UBS (0.9%) Perth Mint (0.5%) ANZ ETF (0%) Source: ASX, Company and Bell Potter data There are some notable shifts in market share amongst the ETF providers over this period. StateStreet market penetration continued to slide as it now only represents 24% of the market. Meanwhile, Vanguard benefited from their low cost product and has seen its penetration increase from 19% to 21%. ishares has managed to consolidate its position with market penetration steady at 36% thanks to strong support from IVV (S&P 500) and IOO (S&P Global 100). And UBS, one of the more recent entrants, has seen it penetration increase by a 1% with its global ethical solutions for investors. ishares continues to dominate with $6.6bn in FUM, compared with StateStreet on $4.4bn, Vanguard on $3.8bn and BetaShares on $1.9bn. The remaining providers account for $1.6bn between them. We believe the ETF providers offering international solutions are going to continue to drive flows in the next 12-month period. This is likely supported by an influx of new international products.

9 EXCHANGE TRADED FUNDS. 9 ETF Summary Information This report aims to provide a comprehensive assessment of the Australian ETP landscape including Market Update and Summary Information to assist with the selection process. We also enclose an individual profile sheet for each ETP that provides a snap shot including a description, performance, country and sector allocation, risk and return metrics, and valuation measures. Summary Information (Page 10) This table provides a comprehensive review of the product suite of ETFs available on the ASX. The universe is broken into each asset class and investment style. It is designed to allow an investor to quickly establish which ETFs are available in each category and key points of differentiation. This page includes: Description: Index, commodity or currency that the product is tracking. ETF ASX Code Price: As at 31 July 2015 Manager: The investment manager supporting the product. Index: Operator of the Index Holdings: Approximate amount of securities in the ETF s portfolio Fees : Management and Performance Fees Spread: Bid-Ask spread to instigate a trade

10 EXCHANGE TRADED FUNDS. 10 Summary Information Domestic ETFs Description ETF Price ($) Manager Index Holdings Fees (%) Spread (%) Listed ASX Global Mkt Cap Broad Market ASX 200 IOZ ishares MSCI ~ Dec ASX 200 STW Statestreet S&P ~ Aug-01 3,122.1 ASX 300 VAS Vanguard S&P ~ May-09 1,137.5 Large Cap ASX 20 ILC ishares S&P ~ Dec ASX 30 VLC Vanguard MSCI ~ May ASX 50 SFY StateStreet S&P ~ Aug ASX 100 ZOZI ANZ ETFS S&P ~ n/a Jun Small Cap ASX Small Ords ISO 3.74 ishares S&P ~ Dec ASX Small Ords SSO StateStreet S&P ~ Apr ASX Small Companies VSO Vanguard MSCI ~ May ASX Small Cap Div Payers MVS Market Vectors MV ~ n/a May Sector ASX 200 Financials x-prop OZF Statestreet S&P ~ Apr ASX 200 Financials x-prop QFN 12.2 BetaShares S&P n/a Dec Australian Banks MVB Market Vectors MV ~ Oct ASX 200 Resources QRE 4.32 BetaShares S&P n/a Dec ASX 200 Resources OZR 7.81 Statestreet S&P ~ Apr Australian Resources MVR Market Vectors MV ~ Oct Emerging Resources MVE 6.25 Market Vectors MV ~ Oct ASX 200 Property SLF Statestreet S&P ~ Feb ASX 300 Property VAP Vanguard S&P ~ Oct Australian Property MVA Market Vectors MV ~ Oct High Div High Dividend Yield IHD ishares S&P ~ Dec High Dividend Yield RDV Russell Russell ~ May High Dividend Yield SYI Statestreet MSCI ~ Sep High Dividend Yield VHY Vanguard FTSE/ASFA ~ Jun Research Pref Aust Div Fund DIV UBS GAM UBS ~ Jan High Shareholder Yield ZYAU ANZ ETFS S&P ~ n/a Jun Dividend Harvester Fund HVST BetaShares BetaShares n/a Oct ASX 20 Equity Yield Maximiser YMAX BetaShares S&P ~ Nov Style Australian Value Shares RVL Russell Russell ~ Mar Australian Equal Weight MVW Market Vectors MV ~ Mar RAFI Australia 200 QOZ BetaShares FTSE ~ Jul IQ Research Pref Aust Share Fund ETF UBS GAM UBS ~ Oct Alternative Australian Equities Bear Fund BEAR BetaShares S&P n/a Jul Australian Equities Strong Bear BBOZ BetaShares S&P n/a Apr Geared Australian Equity GEAR BetaShares S&P n/a Apr Ethical Australian Equity ex Tob ex Cont Weap UBA UBS MSCI ~ Feb Source: Company Data, ASX, B berg, Bell Potter

11 EXCHANGE TRADED FUNDS. 11 Summary Information International ETFs Description ETF Price ($) Manager Index Holdings Fees (%) Spread (%) Listed ASX Global Mkt Cap Global World ex-australia WXOZ Statestreet S&P ~ Mar World ex-australia VGS Vanguard MSCI ~ Nov Global 100 IOO ishares S&P ~ Oct-07 2,420.3 Currency Hedged World ex-aus (AUD hedged) WXHG Statestreet S&P ~ Jul World ex-aus (AUD hedged) VGAD Vanguard MSCI ~ Nov Global 100 (AUD hedged) IHOO ishares S&P ~ Dec S&P 500 (AUD hedged) IHVV ishares S&P ~ Dec Region US Broad Market Index VTS Vanguard MSCI ~ May S&P 500 IVV ishares S&P ~ Oct-07 96,927.9 S&P 500 SPY Statestreet S&P ~ Oct ,325.5 ALL-World ex US VEU Vanguard FTSE ~ May Europe, Australasia & Far East IVE ishares MSCI ~ Oct-07 83,735.0 Europe 350 IEU ishares S&P ~ Oct-07 3,979.6 Asia 50 IAA ishares S&P ~ Sep Brazil, Russia, India & China IBK ishares MSCI ~ Sep Emerging Markets IEM ishares MSCI ~ Oct-07 33,490.0 Emerging Markets WEMG Statestreet S&P ~ Nov Emerging Markets VGE Vanguard FTSE ~ Nov Country China Large-Cap IZZ ishares FTSE ~ Oct-07 9,077.2 China A-Shares CETF Market Vectors CSI ~ n/a Jun Hong Kong IHK ishares MSCI ~ Nov-07 4,634.3 Japan IJP ishares MSCI ~ Oct Singapore ISG ishares MSCI ~ Nov-07 1,026.3 South Korea IKO ishares MSCI ~ Nov-07 4,989.4 Taiwan ITW ishares MSCI ~ Nov-07 5,101.4 US Capitalisation Nasdaq 100 NDQ BetaShares Nasdaq n/a 0.48 n/a May Russell 2000 IRU ishares S&P ~ Nov-07 38,111.9 Midcap 400 IJH ishares S&P ~ Oct-07 36,797.4 Small Cap 600 IJR ishares S&P ~ Oct-07 23,137.7 Sector Global Select Real Estate DJRE Statestreet Dow Jones ~ Nov Global Consumer Staples IXI ishares S&P ~ Mar Global Healthcare IXJ ishares S&P ~ Mar-09 2,374.2 Global Telecommunications IXP ishares S&P ~ Mar Gold Miners GDX Market Vectors NYSE ARCA ~ n/a Jun-15 6,124.2 Source: Company Data, ASX, B berg, Bell Potter

12 EXCHANGE TRADED FUNDS. 12 Summary Information International ETFs (cont.) Description ETF Price ($) Manager Index Holdings Fees (%) Spread (%) Listed ASX Global Mkt Cap Fundamentals World ex Australia Quality QUAL Market Vectors MSCI ~ Oct RAFI US 1000 QUS BetaShares FTSE n/a Dec Morningstar Wide Moat MOAT Market Vectors Morningstar ~ n/a Jun-15 1,187.9 Yield Global Dividend Fund WDIV Statestreet S&P ~ Nov S&P 500 Yield Maximiser Fund UMAX BetaShares S&P n/a Sep S&P 500 High Yield Low Vol Fund ZYUS ANZ ETFS S&P n/a 0.35 n/a Jun Ethical World Ex Aus ex Tobacco ex Con Weap UBW UBS MSCI ~ Feb Europe ex Tobacco ex Con Weap UBE UBS MSCI ~ Feb Asia Apex 50 ex Tobacco ex Con Weap UBP UBS MSCI ~ n/a May US ex Tobacco ex Con Weap UBU UBS MSCI ~ Feb Japan ex Tobacco ex Con Weap UBJ UBS MSCI ~ Mar Source: Company Data, ASX, B berg, Bell Potter

13 EXCHANGE TRADED FUNDS. 13 Summary Information Fixed Income, Commodities & Currency ETFs Description ETF Price ($) Manager Index Holdings Fees (%) Spread (%) Listed ASX Global Mkt Cap Domestic Fixed Income Composite Bond IAF ishares Bloomberg ~ Mar Government Inflation ILB ishares Bloomberg ~ Mar Treasury IGB ishares Bloomberg ~ Mar Government Bonds RGB Russell DBIQ ~ Mar Semi-Government Bonds RSM Russell DBIQ ~ Mar Corporate Bonds RCB Russell DBIQ ~ Mar Government Bonds VGB Vanguard Bloomberg ~ Apr Fixed Interest VAF Vanguard Bloomberg ~ Oct Government Bonds GOVT Statestreet S&P ~ Jul Fixed Interest BOND Statestreet S&P ~ Jul High Interest Cash AAA BetaShares 30 Day BBSW n/a Mar Commodities Unhedged Physical Gold GOLD ETF Securities Spot Gold n/a Mar Physical Gold ZGOL ANZ ETFS Spot Gold n/a 0.40 n/a Jun Spot Gold PMGOLD Gold Corp Spot Gold n/a Jan Physical Silver ETPMAG ETF Securities Spot Silver n/a Jan Physical Platinum ETPMPT ETF Securities Spot Platinum n/a Jan Physical Palladium ETPMPD ETF Securities Spot Palladium n/a Dec Basket ETPMPM ETF Securities n/a n/a Jan Agriculture ^ ETPAGR 7.86 ETF Securities Bloomberg n/a Jun All Commodities ^ ETPCMD ETF Securities Bloomberg n/a Jun Copper ^ ETPCOP ETF Securities Bloomberg n/a Jun Corn ^ ETPCRN 1.81 ETF Securities Bloomberg n/a Jun Natural Gas ^ ETPGAS 0.10 ETF Securities Bloomberg n/a Jun Grains ^ ETPGRN 6.32 ETF Securities Bloomberg n/a Jun Industrialised Metals ^ ETPIND ETF Securities Bloomberg n/a Jun Energy ^ ETPNRG 7.65 ETF Securities Bloomberg n/a Jun Brent Crude ^ ETPOIL ETF Securities Bloomberg n/a Jun Wheat ^ ETPWHT 1.37 ETF Securities Bloomberg n/a Jun Hedged Spot Gold (AUD hedged) QAU BetaShares Spot Gold n/a May Crude Oil Index (Synthetic) OOO BetaShares S&P n/a Nov Agriculture (Synthetic) QAG 7.91 BetaShares S&P n/a Dec Commodities (Synthetic) QCB BetaShares S&P n/a Dec Currency USD USD BetaShares Spot USD n/a Feb USD ZUSD ANZ ETFS Spot USD n/a 0.45 n/a Jun EEU EEU BetaShares Spot EURO n/a Jul POU POU BetaShares Spot GBP n/a Jul RMB ZCNH ANZ ETFS Spot RMB n/a 0.57 n/a Jun Source: Company Data, ASX, B berg, Bell Potter

14 EXCHANGE TRADED FUNDS. 14 Appendix A: How an ETF works ETFs are open ended securities that trade on an exchange. Open ended denotes that new products can be created and redeemed on the Primary Market, without the requirement to release a new prospectus, ad infinitum. The open ended nature of ETFs is unique to this product class, and what keeps the underlying Net Asset Value (NAV) in line with the assets market price. This process is managed by the Authorised Participants and Market Makers who are engaged by the ETF operator to continually create and redeem shares to ensure the discount to NAV is managed within a defined range. This results in a two tiered market structure: The Primary Market and the Secondary Market. The Primary Market is the market in which Market Makers, via the Authorised Participants, are able to create and redeem units. The Secondary Market is the market in which investors are able to buy and sell these units on an exchange. Mechanics of the Primary Market The Authorised Participant applies to the issuer to create new ETF units via creation units. In return for each creation unit, the Authorised Participant will deliver a basket of securities that has been specified by the Issuer. This basket will be transferred and held by a Custodian. Following settlement, the Authorised Participant has an inventory of ETF securities (shares) that can be accessed by the Market Makers and sold on the ASX in the Secondary Market. The redemption process operates in a similar manner. The Authorised Participant applies to redeem the securities in creation units. In return for each creation unit, the Authorised Participant will receive a basket of securities in kind. Each ETF security effectively represents a sliver of a creation unit. Creation units are typically created in baskets in excess of $1.2m. Mechanics of the Secondary Market The Secondary Market is the market in which investors are able to buy and sell ETF units with the assistance of the Market Maker. The Market Maker will access the Authorised Participants (Primary Market) if additional inventory is required (create) or alternatively sold (redeem), to in effect make the market. Hence, the liquidity of the ETF is as liquid as the underlying market. The Market Maker effectively ensures liquidity in the market place by quoting Buy and Sell prices during the trading day. These prices are continuously updated to reflect the underlying changes in the securities. The ETF Issuer generally has a formal arrangement with at least one Market Maker with a mandate to make the market within a specified range of spread. However, in dislocated markets, Market Makers can suspend operations until the market stabilises. Figure 3 - ETF Market Structure: Primary and Secondary Market Source: Bell Potter

15 EXCHANGE TRADED FUNDS. 15 Appendix B: Physical versus Synthetic ETFs come in two basic forms: Physical or Synthetic. A Physical ETF (or traditional ETF) is backed by the underlying securities to achieve market performance, whereas a Synthetic ETF also incorporates derivatives to deliver market performance. Physical ETFs can either be Full Replication or Optimisation. Full replication means that the entire index is bought in the exact same weightings as the index to replicate performance. Optimisation is similar to replication, however, the portfolio seeks to reproduce the index performance using a representative basket of securities rather than buying each and every component. Optimisation is generally used in markets where liquidity may be limited or costs are prohibitive for full replication. Synthetic ETFs differ from Physical ETFs in that they use derivatives to track an index. More specifically, Synthetic ETFs available in Australia seek to replicate an index by purchasing a basket of securities or cash as collateral in exchange for a return contract that tracks the price and distribution performance of the relevant index, before fees and expenses. Hence, if the portfolio underperforms the index, the amount of underperformance is payable by the financial institution to the ETF. Conversely, if the portfolio outperforms the index, the amount of outperformance is payable from the ETF to the financial institution. However, this also raises an additional element of concern given the use of derivatives exposes the ETF holder to counterparty risk. Firstly, the swap negotiated with the counterparty is an over the counter derivative. Hence, investors are exposed to counterparty risk for the portion of the NAV that is not represented by physical assets. Secondly, in the event of default and the counterparty is unable to fulfil its obligation, shareholders are left with an interest in the securities held in the ETF portfolio. In the case of overseas Synthetic ETFs, these holdings may diverge significantly from the underlying index. Finally, the Bank for International Settlements also raised some concern regarding the quality and liquidity of physical assets underlying Synthetic ETFs and in particular the motivations that may arise when the ETF issuer is a related party to the investment bank that is the swap counterparty. To counter these concerns, ASIC and ASX have developed regulation and guidelines that state: Only APRA regulated deposit taking institutions (or approved overseas equivalents) are eligible to be a counterparty to an Australian swap enhanced ETF; Swap-enhanced ETFs are allowed a maximum counterparty exposure of 10%, and; A requirement for the underlying assets held by the ETF to be consistent with the investment objective of the fund. As such, the basket of assets that make up a Synthetic ETF listed on the ASX will only be securities that either relate directly to the index being tracked or cash and must make up at least 90% of the portfolio, hence reducing counterparty risk in the event of a default. Further, the issue of a conflict of interest with the ETF provider being the swap provider also does not currently exist in Australia as there are no synthetic ETF providers controlled by the banks to which they have a swap agreement in place. Nonetheless, we remain of the view that as the market evolves and increasingly more sophisticated products enter the market, buyers need to remain aware.

16 EXCHANGE TRADED FUNDS. 16 Appendix C: International Exchange Opening Hours ETF liquidity in the secondary market is assisted by Market Makers. Market Makers effectively ensure liquidity in the market place by quoting Buy and Sell prices during the trading day. These prices are continuously updated to reflect the underlying changes in the securities. Market Makers work most efficiently when the market is completely open. Investors therefore need to be aware of when the underlying markets open and close, to ensure the maximum number of Market Makers are on screen. It is therefore advisable to hold off buying or selling an ETF until 15 minutes after a market opens or no later than 15 minutes before a market closes. Figure 1 - International Exchange Opening Hours Australian Trading Hours (EST) Australia China Japan Korea Singapore Taiwan Hong Kong IOZ, ILC, ISO, IHD IAA, IHK, IBK, IZZ, IEM IJP IKD, IEM ISG ITW, IEM IAA, IHK, IBK, IZZ, IEM United Kingdom/Europe IEU, IVE, IOO, VEU United States IVV, IJH, IJR,IXJ, IXP, IXI, IRU, IOO, VTS 10am 11am 12pm 1pm 2pm 3pm 4pm 5pm Australian Trading Hours (EDST) Australia China Japan Korea Singapore Taiwan Hong Kong/China IOZ, ILC, ISO, IHD IAA, IHK, IBK, IZZ, IEM IJP IKD, IEM ISG ITW, IEM IAA, IHK, IBK, IZZ, IEM United Kingdom/Europe IEU, IVE, IOO, VEU United States IVV, IJH, IJR,IXJ, IXP, IXI, IRU, IOO, VTS 10am 11am 12pm 1pm 2pm 3pm 4pm 5pm Source: ishares, Bell Potter

17 EXCHANGE TRADED FUNDS. 17 Appendix D: ETF / ETC Market Making Quoting Obligations

18 EXCHANGE TRADED FUNDS. 18 Appendix E: Glossary Active Management: Investing with the goal of outperforming a benchmark index. Alpha: The manager's return relative to the return of a benchmark. For example, consider a manager with a Russell 1000 Value benchmark. If the manager returned 7% when the Russell 1000 Value returned 6%, the alpha would be 1%. However, alpha can be both positive and negative (outperformance and underperformance). Asset Allocation: The process of spreading an investment among various asset classes such as stocks, bonds, and cash equivalents. Authorised Participant: Large investors, institutions, exchange specialists, and arbitrageurs that place orders for creation units with the fund s distributor. Beta: In the context of this report, a beta is a representation of the tendency of a company s share price to respond to swings in the market. A beta of 1 indicates that a company s share price will move in line with a benchmark. A beta of greater than one indicates that a share s price will be more volatile than the market. Bid and Ask: The price an owner offers to sell (ask) and the price a prospective buyer offers to purchase (bid). Credit Ratings: Forward-looking opinions about credit risk based on the ability and willingness of an issuer, such as a corporation or government, to meet their financial obligation in full and on time. Dividend: A distribution to preferred or common stockholders. Excess Return to Risk Ratio: This ratio, also known as the Sharpe ratio, provides a measure of the return of each portfolio relative to the risk taken by the investment manager in achieving those returns. A high return is only desirable if it does not come with too much additional risk (volatility of returns - see Standard Deviation). In the context of this report, each ETF s excess return to risk ratio can be looked at in combination with its annualised compound total return directly below in our 3-year performance measures. Grossed Up Dividend Yield: This is the dividends paid plus any franking credits passed on to shareholders. Exchange Traded Funds: Investment vehicles that are constructed like a mutual fund but trade like an individual security on a stock exchange. Created in 1989, these instruments have been widely used by institutional investors and retail investors. Franking: A tax credit used in Australia that allows domestic companies to pass through taxes that have already been paid on corporate profits. The investor receiving stock dividends will also receive a quantity of franking credits in proportion to the overall tax rate of the company per dollar in profits. Free-Float: The amount of a company's shares outstanding that are available for purchase on the open market at any point in time. Full Replication: Process in which a portfolio manager seeks to replicate performance by exactly matching the benchmark in composition and weight to ensure a similar outcome. Growth-Oriented Securities: Companies that have exhibited faster-than-average gains in earnings over several years and are expected to continue to show high levels of profit growth. Typically riskier than average stocks, they exhibit higher price/earnings ratios and often make little or no dividend payments to shareholders. Liquidity: The ability to convert a security or asset quickly into cash. Modified Duration: A measure of price sensitivity of a bond to changes in interest rates. It inversely indicates the expected change in the price of a bond assuming a 1% change in yield. Net Asset Value (NAV): The value of the underlying assets of the fund minus its liabilities, divided by the number of shares outstanding. Calculated at the end of each business day. Optimisation: Process in which a portfolio manager seeks to replicate an index by using a representative basket of securities. Optimisation is generally used in markets where liquidity may be limited or costs are prohibitive for full replication. Passive Management: Investing in an attempt to track the return of the underlying benchmark index. Typically a passively managed portfolio has good diversification, low turnover (good for keeping down internal transaction costs), and lower management fees. MSCI: The MSCI indices encompass 23 developed, 25 emerging, and 22 frontier markets. Redeem: To exchange fund shares for their present value in either cash or "in-kind" securities. Running Yield: The annual coupon payment divided by the current share price. It gives an indication of expected cash flow income from invested capital.

19 EXCHANGE TRADED FUNDS. 19 Glossary S&P 500: Widely regarded as the standard for measuring large-cap U.S. stock market performance. This index includes a representative sample of leading companies in leading industries. Sharpe ratio: This ratio provides a measure of the return of each ETF s portfolio relative to the risk taken by the Investment Manager in achieving those returns. A high return is only desirable if it does not come with too much additional risk (volatility of returns). In the context of this report, each ETF s excess return to risk ratio can be looked at in combination with its annualised compound total return directly. Standard Deviation: This is a measure of the dispersion of a portfolio s returns around its average return. A data set that has many monthly returns a long way from the average return will have a greater standard deviation than a set of monthly returns that are close to the average. In the context of this report, we calculate the average monthly return of each ETF, as represented by changes in its NAV, and from this we can calculate a standard deviation from its average. A theoretical ETF that achieved the exact same return every month would have a standard deviation of zero. Spread: The gap between bid and ask prices of a security. Tactical Asset Allocation: An active management portfolio strategy that rebalances the percentage of assets held in various categories in order to take advantage of market pricing anomalies or strong market sectors. Tracking Error: This is a measurement of how much the return on a portfolio deviates from the return on its benchmark index. A data set that has a low tracking error means that its returns are closely tracking the portfolio s benchmark. Tracking error is the standard deviation of the differences between the return on the portfolio and the return on the benchmark. Value-Oriented Securities: Stocks of corporations that are "cheap" by traditional measurements in comparison to their price/earnings ratio, price/book ratio, and yield. Weighted Average Coupon: Used to calculate the average coupon of a basket of bonds. It is calculated as the average of the underlying bonds coupon rates weighted by the bonds weight in the fund. Weighted Average Term to Maturity: A measure of the maturity of a basket of bonds. It is calculated as the average of the underlying bonds maturities weighted by the bonds weight in the fund. A bond s maturity is the length of time until the date when the principal amount of a bond is to be repaid. Yield: The return on a security or portfolio in terms of cash payments. A percentage obtained by dividing the current dollar income by the current market price of the security. Yield to Maturity: Rate of return that is anticipated on a bond if it is held until maturity. The yield takes into account both return received for the coupon payment and the return from the price appreciation or depreciation of the bonds inside the product.

20 Important Disclaimer This may affect your legal rights: Because this document has been prepared without consideration of any specific client s financial situation, particular needs and investment objectives, a Bell Potter Securities Limited investment adviser (or the financial services licensee, or the proper authority of such licensee, who has provided you with this report by arrangement with Bell Potter Securities Limited) should be consulted before any investment decision is made. While this document is based on the information from sources which are considered reliable, Bell Potter Securities Limited, its directors, employees and consultants do not represent, warrant or guarantee, expressly or impliedly, that the information contained in this document is complete or accurate. Nor does Bell Potter Securities Limited accept any responsibility to inform you of any matter that subsequently comes to its notice, which may affect any of the information contained in this document. This document is a private communication to clients and is not intended for public circulation or for the use of any third party, without the prior approval of Bell Potter Securities Limited. This is general investment advice only and does not constitute advice to any person. Disclosure of Interest: Bell Potter Securities Limited receives commission from dealing in securities and its authorised representatives, or introducers of business, may directly share in this commission. Bell Potter Securities and its associates may hold shares in the companies recommended. Bell Potter Securities Limited info@bellpotter.com.au ABN AFSL no