ListedInvestmentCompanies

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1 Date of issue 27 ListedInvestmentCompanies LIC Quarterly - Spring 2007 Reducing the volatility The past three months have seen volatility in global share markets increase markedly. This was not driven by company earnings or valuation issues, which still remain quite supportive of share valuations. Global share markets fell on the back of financial turmoil stemming from the US sub-prime mortgage backed securities and collateralised debt obligations (CDOs) market. Since mid-august global share markets, particularly Australia, have rebounded strongly as market participants began to recognise the strong underlying fundamentals that had prompted previous market highs were still intact. This period has served as an opportune time to consider one of the prime benefits of many Listed Investment Companies (LICs) lower share price volatility. This is commonly measured using a beta calculation. We include each LIC s beta within this report, with an explanation contained on page 10. Figure 1: Relative performance All Ords AFI ARG Jul 3-Aug 17-Aug 31-Aug 14-Sep 28-Sep This lower volatility was best highlighted by the share price movements of some of the traditional LICs including, inter alia, Australian Foundation Investment Company (ASX: AFI) and Argo Investments (ASX: ARG) over the past three months. The All Ordinaries Index recorded its then highest close on July 20 and subsequently proceeded to fall 12.2% over the next four weeks to its recent low close on 17 August. Over that same period the share prices of these two LICs fell, on average, just 7.1%. The share prices of these LICs have not recovered as quickly as the All Ordinaries, with this being a secondary effect of their lower betas; however the recovery of each is from a much higher base. The daily share price movements of these LICs and the All Ordinaries Index are demonstrated above in Figure 1. Chris Gibson cgibson@bellpotter.com.au In this issue: Page 4 Bell Potter LIC Universe - FY07 dividend and results review 5 Bell Potter LIC Universe - Net tangible assets and yield review 6 NTA premium / discount summary 7 Comparison of portfolio performance relative to NTA premium / discount 9 Legend: 3-year performance measures 11 Listed Investment Company reviews 47 Alternative Listed Managed Investments 49 Glossary 50 News Brief 1

2 Reducing the volatility continued The effect of these lower betas can be examined in another way. Empirically there has been a negative correlation between the average discounts at which LICs trade to their pre-tax net tangible assets (NTAs) and the movement of the broader market, measured through the All Ordinaries Index. In very general terms the discounts at which LICs trade to NTA tends to expand during periods of sustained growth in share markets and contract during market pullbacks. While this effect is more noticeable over a medium to long term outlook the last three months has packed an entire pseudo market cycle into a single quarter. Figure 2 demonstrates how average discounts to NTA shrank from June to July as market jitters first emerged and then expanded again over late August and into September as investor confidence returned with a vengeance. We have displayed the performance of the All Ordinaries inversely to highlight the negative correlation between these measures. Figure 2: Comparative NTA discounts and market returns 5600 % Discount to NTA at month end All Ordinaries Index - Inverse -1 June July August September 6800 Arithmetic Average (LHS) Weighted Average (LHS) All Ords (RHS) Bell Potter currently provides performance reviews on a universe of 32 LICs that ordinarily invest in either Australian or International listed securities. Also included within this universe are LICs that invest in specialist market segments. We provide summary information on a further four LICs that have been listed for less than one year. Brief summaries of four alternative Listed Managed Investments are also included near the back of this report. 2

3 First quarter in review Despite the current turbulence being experienced by global markets, the NTAs of Bell Potter s universe of LICs have grown by an average 3.8% (or 3.9% on a weighted basis) over the first quarter of FY08. However returns within various market segments in which these LICs invest have varied considerably and this has been reflected in the returns of specific LICs. We have been advocating for some time now the merits of investing in the resources sector as the veracious appetites of countries such as China and India seek more and more of the world s natural resources in their quests to industrialise. During the past three months the best four performing LIC portfolios within the Bell Potter universe have been investing in China (AMP Capital China Fund), India (India Equities), Australasian resources companies (LinQ Resources Fund) and global resources companies (Global Mining Investments) respectively. Generally, those LICs investing predominantly in the broader Australian market have returned mixed results while LICs with a focus on global investment platforms and LICs with a long/short approach to investing have struggled to keep pace, as is reflected in Figure 3. Figure 3: LIC portfolio returns for first quarter of fiscal year AGF LRF INES GMI WLS KAT MPG ALR DUI AUI DJW WHF HIC AFI ARG MLT CHO IBC ELI CIN BKI AMH CYA HHV CTN PRV VTP WIL MFF WAM PMC TGG SOE MIR CDM HAP 3

4 Results Review Table 1 presents a summary of results as reported by the LICs within Bell Potter s universe for FY07. This table includes each LIC s reported accounting net profit after tax (NPAT) as well as the total dividend and interest income generated by each LIC. Companies are required under accounting standards to include in their Income Statement, all realised and in some cases unrealised, profits and losses incurred during the year in calculating their NPAT. As many LICs intend to hold the majority of their investments for an indefinite period the ability of those companies to pay dividends out of cash flow relies heavily on the annuity style income their investments generate on an annual basis. Table 1 also provides information on those LICs that included a LIC capital gain as part of their FY07 dividends, the final dividend declared by each LIC and summary of the total dividends declared by each LIC for FY07. Table 1: FY07 results and dividend summary ASX Listed Investment Companies ASX Code Price as at 30/09/07 ($) Reported Net Profit After Tax ($m) and Interest Income ($m) Final Dividend Declared ( ) Franking (%) LIC Capital Gain Declared ( ) FY07 Declared (inc Special) Aberdeen Leaders ALR Amcil AMH AMP Ca pi ta lchi n a Gro wth AGF 4 not yet re po rte d Argo Investments ARG AFIC AFI Australian United AUI Brickworks BKI Cadence Capital CDM Carlton Investments CIN Century Australia CYA Choiseul CHO Contango Microcap CTN Diversified United DUI Djerriwarrh Investments DJW Emerging Lea d ers ELI Global Mining Investments GMI HFA Accelerator Plus HAP Hunter Hall Global Value HHV Huntley Investment Co HIC India Equities Fund INES Ironbark Capital IBC Katana Capital KAT LinQ Resources Fund LRF Macquarie Private Capital MPG Magellan Flagship Fund MFF Milton Corporation MLT Mirrabooka MIR Platinum Capital PMC Premium Investors PRV Souls Private Equity SOE Templeton Global Growth TGG van Eyk Three Pillars VTP WAM Capital WAM Whitefield* WHF Wilson Investment Fund WIL Wilson Leaders Fund WLS *Fiscal year to 31 March 4

5 Bell Potter LIC Universe - Month End Summary Information On a market capitalisation weighted average ( average ) basis, the LICs within the Bell Potter universe were trading at an average discount to pre-tax NTA of 5.3% at 30 September 2007 after closing the gap during the turbulence of July and August. Table 2: Share price premium/discount to NTA and Yield Page ASX Listed Investment Companies ASX Code Price as at 30/9/07 ($) Pre-tax NTA 30/9/07 ($) Prem/ (Disc) to pre-tax NTA (%) Post-tax NTA 30/9/07 ($) Prem/ (Disc) to post-tax NTA (%) 12 Month Dividend Per Share ($)* Grossed Up Dividend Yield (%)* Franking (%) Market Cap 30/9/07 ($m) 11 Aberdeen Leaders ALR Amcil AMH AMP Capital China Growth AGF Argo Investments ARG , AFIC AFI ,69 16 Australian United AUI Brickworks BKI Cadence Capital CDM Carlton Investments CIN Century Australia CYA Choiseul CHO Contango Microcap CTN Diversified United DUI Djerriwarrh Investments DJW , E me r gingl e a de r s E L I Global Mining Investments GMI HFA Accelerator Plus HAP Hunter Hall Global Value HHV Huntley Investment Co HIC India Equities Fund INES Ironbark Capital IBC Katana Capital KAT LinQ Resources Fund LRF Macquarie Private Capital MPG Magellan Flagship Fund MFF Milton Corporation MLT ,96 37 Mirrabooka MIR Platinum Capital PMC Premium Investors PRV Souls Private Equity SOE Templeton Global Growth TGG van Eyk Three Pillars VTP WAM Capital WAM Whitefield WHF Wilson Investment Fund WIL Wilson Leaders Fund WLS *based on historical dividends declared Arithmetic Average Weighted Average Weighted Average (Market Cap under 0m) Weighted Average (Market Cap over 0m) What are LICs? LICs provide investors with exposure to a professionally managed and diversified portfolio of assets. These assets may include Australian shares, international shares, fixed income securities, property, and unlisted private companies. An investor s exposure is very similar to a traditional managed fund - with up to 200 different shares in their portfolio^. ^ASX Listed Investment Companies Fact Sheet: 5

6 Bell Potter LIC Universe - Premium/Discount Summary We have categorised the universe of LICs reviewed by Bell Potter according to the percentage premium or discount at which each traded, relative to pre-tax NTA, as at 30 September We have defined substantial to be a 1 premium or discount to pre-tax NTA as we feel that this identifies those stocks trading at a substantial premium/ discount while removing some of the effects of short term price volatility. This is a quantitative ranking only and should be read in conjunction with the information provided on pages 7 and 8 of this report. Figure 4: Premium/Discount v Pre-tax NTA SHARE PRICE / PRE-TAX NTA Substantial discount Approximately in line Substantial premium COMPANY AMP Capital China Growth Fund Brickworks Cadence Capital Carlton Investments Contango Microcap Emerging Leaders Global Mining Investments HFA Accelerator Plus Hunter Hall Global Value Huntley Investment Co India Equities Fund Katana Capital LinQ Resources Fund Macquarie Private Capital Magellan Flagship Fund Souls Private Equity Whitefield Wilson Investment Fund Wilson Leaders Fund Aberdeen Leaders Amcil Argo Investments AFIC Australian United Century Australia Choiseul Diversified United Djerriwarrh Investments Ironbark Capital Milton Corporation Mirrabooka Premium Investors Templeton Global Growth van Eyk Three Pillars WAM Capital Platinum Capital 6

7 Performance relative to NTA Premium or Discount Figure 5 provides a review of the option adjusted* pre-tax NTA performance of each LIC (assuming dividends reinvested) over the past 12 months. This is noted by its position along the horizontal axis, with LICs further to the right having achieved better returns. Figure 5 also highlights the share price premium or discount to pre-tax NTA at which each LIC was trading as at 30 September This can be read by noting each LIC s position along the vertical axis. A LIC that is sitting below the 0 (zero) on the vertical axis was trading at a discount to its NTA at month end. Some of the LICs covered in this report have options outstanding to acquire additional securities in the company. We have calculated a fully diluted pre-tax NTA for those securities and used a secondary plot (a 6-point star) of the portfolio performance and share price premium or discount under this measure using a tag ending in -O. Figure 5: Share price premium/discount v portfolio performance 20 PMC 10 (Discount)/Premium to NTA (%) TGG HHV SOE AMH IB C CYA PRV WHF HIC MLT ARG DJW AFI ALR CHO WLS-O MIR DUI WAM VTP AUI BKI CIN WIL WLS KAT MPG HAP ELI-O ELI CTN LRF GMI Month Portfolio Return (%) This scatter graph continues to demonstrate the same characteristics as it has been showing throughout calendar LICs with broad global investment mandates have continued to lag the returns achieved by Australian and niche investment managers. This does not necessarily reflect poor performances on the part of those managers and we direct investors to the respective summary pages of those LICs in which we have provided a comparison of each LICs return relative to their nominated (or surrogate) benchmarks. As we have noted in previous issues and again on page two of this edition the portfolio returns of LICs with a focus on resources companies have continued to provide stellar returns. Investors appear to be slowly accepting this fact and the discounts to NTA at which each these LICs trade has begun to close. *refer to glossary 7

8 Performance v NTA Premium or Discount continued LICs often trade at a consistent premium or discount (premium) to NTA, with the standard deviation providing a range in which a LIC s premium normally falls. By determining each LIC s average premium we can look for anomalies between average premiums to NTA and current premiums to NTA. Accordingly, we have calculated each LIC s 3-year average share price premium to reported pre-tax NTA as well as its standard deviation* from that average. We have sought to provide some perspective of the current premium at which each LIC is trading with figure 6 representing the current premium being paid for each LIC, as noted in Figure 5 on the previous page, in standard deviations from its 3-year average. Figure 6: Current Premium/Discount to pre-tax NTA relative to 3-year Average AFI ALR AM H ARG AUI BKI CHO CIN CTN CYA DJW DUI ELI GMI HAP HHV HIC IB C KAT LRF MIR MLT MPG PMC PRV SOE TGG VTP WAM WHF WIL WLS Carlton Investments (CIN) share price has begun to trail the growth in its NTA and was trading at a 9.9% discount to pre-tax NTA at 30 September. Choiseul (CHO), Milton (MLT) and Djerriwarrh (DJW) have begun to move back towards their respective norms. Global Mining Investments (GMI) shares are still trading at a discount to NTA however this discount relative to the three year average discount has decreased substantially even after the market digested an additional 45.6 million shares issued through a rights issue. *refer to glossary Bell Adelaide Potter Securities Melbourne Research Brisbane Mornington Perth Cairns Geelong Hobart ABN Southport Sydney info@bellpotter.com.au Toll Free

9 Legend to 3-year performance measures The following provides an explanation of each item contained within our 3-Year Performance Measures. The number beside each item reflects its location in Figure 8. Figure 7: $2.20 $0 1 $ Excess Return/Risk Ratio 5 6 Annualised Compound Total Returns Shareholder 26.5% Benchmark 26.4% 23.1% Portfolio 7 1) The upper graph, as presented in Figure 7, provides the daily closing share price of each LIC over the last 3 years and is presented using the actual share price on the left-handaxis of that graph. 2) Premium/Discount to pre-tax NTA The columns in the lower graph, as presented in Figure 7, shows the share price premium/discount paid by investors relative to month-end pre-tax NTA and is measured as a percentage on the left-hand-axis of the lower graph. 3) Performance The dark line in the lower graph, as presented in Figure 7, highlights the total increase in the value of invested by that Investment Manager over the last 3 years (assumes dividends reinvested) on a pre-tax basis. Portfolio performance is measured in dollars on the right-hand-axis of the lower graph. 4) Total Shareholder Return (TSR) The light line in the lower graph, as presented in Figure 7, highlights the total increase in the value of invested by a shareholder in that LIC over the last 3 years (assumes dividends reinvested). TSR takes into account grossed up dividends paid as well as share price appreciation and may differ from share price performance in this regard. TSR is measured in dollars on the right-hand-axis of the lower graph. PLEASE NOTE: For the purposes of calculating dividends we exclude any special dividends declared. 9

10 Legend to 3-year performance measures cont... 5) Historical Beta A LIC s historical beta is a measure of the volatility of its share price relative to the volatility of the market as a whole. A beta of 1 means that a LIC s share price has moved in line with the market. A LIC with a beta less than 1 suggests that its share price has been less volatile than the market. However, we note that given that some LICs trade infrequently this measure may not fully represent the volatility of those securities. We use a weekly historical share price beta which is measured against the weekly movements of the All Ordinaries Accumulation Index. 6) Excess Return to Risk Ratio This ratio, also known as the Sharpe ratio, provides a measure of the return of each LIC 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 LIC s excess return to risk ratio can be looked at in combination with its annualised compound total return directly below (refer note 7). The position of the split in the shading of the dial represents the excess return/risk ratio of that LIC s benchmark over the three-year period and is designed to give readers a guide as to the performance of the fund manager relative to its chosen benchmark (measurements adjusted accordingly where a LIC has been listed for less than 3 years). Please note: (1) Excess return measured on pre-tax basis; (2) although the excess return/risk ratio appears on the same line as the share price beta they are not directly related, nor comparable; (3) Where a LIC has set an absolute return (i.e. a fixed percentage return) as its benchmark we have set the Sharpe ratio to one. This is the level at which risk taken (volatility of returns) in improving portfolio performance is equal to the gains achieved. 7) Annualised Compound Total Returns The Annualised Compound Total Return calculates the constant yearly return that would result in the initial value of an investment reaching its ending value as represented by the TSR line (note 4). The annualised compound total returns are calculated over a three year period. Where a LIC has been listed for less than three years each return has been adjusted to reflect the annualised return since its listing. The annualised compound total returns are calculated pre-tax and represent the following: 1) Shareholder: The annualised compound total return of a shareholder holding shares and reinvesting dividends 2) Portfolio: The annualised compound total return of the LIC s investment portfolio, net dividends reinvested 3) Benchmark: The three year annualised compound return of the chosen benchmark. Use of Benchmark Returns & Volatility In this edition and moving forward we have moved to comparing the performance of each LIC portfolio to that of its chosen benchmark. In some instances the exact Index as selected by a LIC will not be readily available. In such cases we have determined the most appropriate surrogate index to provide readers with a reasonable guide as to the performance and volatility of that LIC s benchmark. 10

11 Australian listed equities Aberdeen Leaders (ALR) Manager: Aberdeen Asset Management Benchmark: S&P ASX200 Accumulation Index Management Fee: 5% Yes¹ Top Holdings as at: 30 Sep 07 BHP Billiton 10.5 Rio Tinto 8.3 QBE Insurance 7.4 ANZ Banking Group 7.2 Westpac Banking Corp 6.7 Westfield 4.9 Woodside Petroelum 4.7 Woolworths 4.6 Commonwealth Bank 4.4 Suncorp-Metway 4.0 Tabcorp Holdings 3.9 ASX 2.9 Leighton Holdings 2.8 Lion Nathan 2.8 Wesfarmers AGL Energy 2.5 Billabong Int'l Tattersall's SP Ausnet 1.7 APN News & Media 87 6 % of Total Portfolio 87.6 and Net Tangible Assets Summary as at: $ 8 Pre-tax NTA $ 6 Post-tax NTA $ 1.90 ALR utilises gearing in the form of bank borrowing and invests in companies within the S&P / ASX 200 index with the objective of delivering regular income and long-term capital growth to its shareholders. ALR has available a revolving term loan of up to m. Manager Premium/(Discount) to NTA -3.7% 9.5% 30 September 2007 ALR has retained Aberdeen Asset Management Limited ( AAML ) as its investment manager on a 12 month rolling contract. AAML is the Australian registered wholly owned subsidiary of Aberdeen Asset Management Plc, a company listed on the London Stock Exchange, whose subsidiaries manage in excess of A billion globally. AAML holds absolute return to be more important over the long term than index-relative returns. In Australia, the equity investment team comprises Mark Daniels, Head of Australian Equities (joined UK); Andrew Preston, Senior Investment Manager ( UK); Michelle Casas, Investment Manager (2004); Natalie Tam, Investment Manager (2005); Justin Farley, Investment Manager (2007); Dawn Kanellas, Investment Manager (2007); and Jovita Khilnani, Investment Analyst (2007) ALR has a policy of delivering regular income balanced against its objective of long-term capital growth. $2.20 $ 2.20 Grossed Up Yield % 5.5 DPS (Historical) 8.5 Dividend Yield % 3.9 Market Capitalisation ($m) Ordinary Shares (m) 57.1 First Listed 25 Aug 97 $0 $ Excess Return/Risk Ratio ¹2 of portfolio returns in excess of the return of the S&P ASX200 Accumulation Index. Where the index return is negative, 2 of the return on the portfolio. No performance fee is payable in a period where the portfolio has had a negative return. Performance fee calculated on 12 month period to 30 June annually Year Annualised Compound Total Returns Shareholder 32.6% Benchmark 26.6% Portfolio 26.7%

12 Australian listed equities AMCIL (AMH) Manager: (internally managed) Benchmark: S&P ASX200 Accumulation Index Mgt Exp Ratio: 2%¹ No Top Holdings as at: 30 Jun 07 BHP Billiton 7.4 Rio Tinto 6.3 St. George Bank 5.7 Queensland Gas Co 5.5 Telstra 5.4 Alumina 5.4 ConnectEast 5.3 Peet 5.0 AMP 4.5 Bradken 4.3 Oakton 3.8 ASG Group 3.6 News Corp 3.4 Santos 3.4 Equity Trustees 3.2 Transpacific Industries Amcor Toll holdings 2.2 Asciano Group Brambles % of Total Portfolio 83.8 and Net Tangible Assets Summary as at: 30 September 2007 $ 0 Premium/(Discount) to NTA Pre-tax NTA $ % Post-tax NTA $ % AMH is a thematic investor that seeks to take advantage of opportunities that arise from general thematic/cyclical rotations in the market, corporate activity and stock specific activity. The company s principles and practices reflect its specialised nature and the limited scope of its activities. Managers AMH is internally managed. The investment committee approves all orders and transactions and sets investment policy. The day to day maintenance of the portfolio is undertaken by a team of analysts and dealers in consultation with the Chairman and MD. The investment team is: Bruce Teele - Chairman of AMCIL. Also Chairman of Djerriwarrh and AFIC. Ross Barker - MD of AMCIL. Also MD of Djerriwarrh, AFIC and Mirrabooka Investments Mark Freeman Alan Dunn The objective of the company is to provide strong capital growth over the medium to long term with a dividend policy which seeks to maximise the distribution of franking credits having regard to the level of profit from year to year. $0 $ 3 Grossed Up Yield % 1 DPS (Historical) 6.0 Dividend Yield % 7.2 Market Cap ($m) Ordinary Shares (m) First Listed 10 Feb ¹As calculated by the Company for year to 30 June Excess Return/Risk Ratio 3 Year Annualised Compound Total Returns Shareholder 27.2% Benchmark 26.6% Portfolio 2%

13 Chinese domestic equities AMP Capital China Fund (AGF) Manager: AMP Capital Benchmark: S&P/CITIC 300 Total Return Index ($A) Management Fee: 5% Yes¹ Top Holdings as at: 30 Apr 07 China Merchants Bank 5.1 CITIC Securities 4.7 Suning Appliance 4.2 China CYTS Tours 3.7 Shanghai Pudong Devt and Net Tangible Assets Summary as at: 30 September 2007 $ 4 Premium/(Discount) to NTA Pre-tax NTA $ 0-1% Post-tax NTA $ 0-1% The Fund s main objectives are to achieve long term capital growth, with a focus on investing in China A shares; and to outperform the benchmark. The fund s manager will utilise expert investment managers and Chinese brokers to identify suitable investment opportunities with a focus on stocks that show potential for capital growth. NB: China A shares are restricted to domestic Chinese investors, qualified foreign institutional investors who have been granted a Qualified Foreign Institutional Investors (QFII) Licence and approved foreign investors. AMP Capital has been granted a QFII Licence to invest up to USm. Manager AMP Capital has appointed its 10 subsidiary, InvestCo (Mauritius), to own the investment portfolio and make investments directly into China A shares. This fund structure has been established to satisfy the corporate regulatory regimes of both Australia and China (AMP has previous experience with the Mauritian legal and regulatory environment); and the tax treaty between Mauritius and China provides an efficient tax structure, including prevention of double taxation of income 20 7 % of Total Portfolio 20.7 The Fund has a long term capital growth focus; its objectives do not include the payment of regular income to investors. Accordingly the default option for investors is a 10 distribution reinvestment $0 $ 6 Grossed Up Yield % - DPS (Historical) - Dividend Yield % - at month end Market Cap ($m) Ordinary Shares (m) 28 First Listed 1958 $0 $ This area left blank intentionally Risk/Excess Return Ratio Annualised Compound Total Returns Shareholder Benchmark Portfolio 1 2 of returns in excess of the S&P/CITIC 300 Total Return Index ($A). 13

14 Australian listed equities Argo Investments (ARG) Manager: (internally managed) Benchmark: ASX All Ordinaries Accumulation Index Mgt Exp Ratio: 0.12%¹ No Top Holdings as at: 30 Jun 07 Macquarie Bank 7.0 BHP Billiton 4.9 Milton corp 3.8 National Bank 3.4 Rio Tinto 2.9 Aust. United Invest. 2.8 ANZ Banking Group Telstra Corp 2.6 Wesfarmers 2.5 Westpac Banking Corp 2.2 Commonwealth Bank St.George Bank 1.9 Woolworths 1.9 AMP Rinker 1.3 Woodside Petroleum Westfield Group 1.1 Orica 1.1 QBE Insurance Group Foster's Group 48 8 % of Total Portfolio 48.8 and Net Tangible Assets Summary as at: 30 September 2007 $ 8.07 Premium/(Discount) to NTA Pre-tax NTA $ % Post-tax NTA $ % ARG seeks to invest in quality companies that display sound management and a capability to grow profitability to fund increasing dividend payments. ARG is a value-orientated, bottom-up stock picker whose objective is to buy on price weakness and hold for the long term. ARG characterises itself as moderately benchmark-aware, value driven and fundamentally based. Managers ARG is internally managed. Key personnel are: Rob Patterson - Managing Director Christopher Hall - Investment Executive Jason Beddow - Investment Executive Brenton Aird - Company Secretary Roly Michelmore - Investment Analyst Richard Colquhoun - Investment Analyst Brydie Lloyd - Investment Analyst ARG looks to pay out a high proportion of its growing income stream to its shareholders by way of fully franked dividends. $ 8.26 Grossed Up Yield % 4.7 DPS (Historical) 27.0 Dividend Yield % 3.3 Market Cap ($m) 4,519.8 Ordinary Shares (m) 56 First Listed 1948 Performance Rights (m) 5 Conversion Annually Fully Diluted² (m) 56 $9.50 $7.00 $ ¹This is the estimated MER calculated as expenses divided by average assets at market value as at 30 June 2007 ²Performance rights may be vested subject to performance criteria being met, an estimated expense relating to these rights is calculated by the company in accordance with accounting standards. 14 Excess Return/Risk Ratio 3 Year Annualised Compound Total Returns Shareholder 24.8% Benchmark 26.4% Portfolio 23.8%

15 Australian Foundation Investment Co. (AFI) Investment Mandate: Australian listed equities Manager: (internally managed) Benchmark: S&P ASX200 Accumulation Index Mgt Exp Ratio: 0.12%¹ No Top Holdings as at: 30 Sep 07 BHP Billiton 1 Commonwealth Bank 7.6 Westpac Banking Corp. 6.0 Rio Tinto 4.7 National Australia Bank 4.7 Wesfarmers 3.6 Telstra Corp 3.3 Woolworths 3.2 Coles Group 2.6 ANZ Banking Group West Aust. News Woodside Petroleum 1.9 Toll Holdings Brambles AMP 1.7 Alumina St. George Bank Westfield Group QBE Insurance Group Suncorp-Metway 65 7 % of Total Portfolio 65.8 and Net Tangible Assets Summary as at: 30 September 2007 $ 5.90 Premium/(Discount) to NTA Pre-tax NTA $ % Post-tax NTA $ % AFI invests in a diversified portfolio of Australian listed securities. To this end it uses an investment committee process, taking inputs from a dealing team, Committee members and broker research from several sources with a view to being satisfied that an investment has good industry economics, adequate board & management, good fundamental value and the likelihood of dividend growth. Divestments are limited to situations of corporate governance issues, management problems, extreme over-valuations and concerns about future dividend streams. Managers AFI is internally managed. The investment committee approves all orders and transactions and sets investment policy. The day to day maintenance of the portfolio is undertaken by a team of analysts and dealers in consultation with the Chairman and MD. The investment team is: Bruce Teele - Chairman of AFIC. Also Chairman of Djerriwarrh and AMCIL. Ross Barker - MD of AFIC. Also MD of Djerriwarrh, AMCIL and Mirrabooka Investments Mark Freeman Alan Dunn AFI aims to pay dividends which, over time, grow faster than the rate of inflation while achieving capital growth over the medium to long term. $6.50 $ 6.11 Grossed Up Yield % 4.9 DPS (Historical) 2 Dividend Yield % 3.4 Market Capitalisation ($m) 5,69 Ordinary Shares (m) First Listed 30 Jun 62 $4.75 $ ¹As calculated by the Company for half year to 30 June Year Annualised Compound Total Returns Shareholder 26.5% Benchmark 26.6% Portfolio 23.1% Excess Return/Risk Ratio

16 Australian United Investment Co. (AUI) Investment Mandate: Australian listed equities Manager: (internally managed) Benchmark: S&P ASX200 Accumulation Index Mgt Exp Ratio: 0.1¹ No Top Holdings as at: 30 Jun 07 BHP Billiton 8.1 Rio Tinto 6.6 ANZ Banking Group 5.6 Diversified United 5.3 Woodside Petroleum 5.1 National Aust. Bank 4.5 Westpac Bank 3.8 Alumina 3.8 Commonwealth Bank 3.4 Tabcorp Holdings Wesfarmers Woolworths Orica 2.5 Brambles QBE Insurance Group Suncorp-Metway 2.2 Westfield 2.2 AXA Asia Pacific Alesco Corp. Sthn Cross Broadcast % of Total Portfolio 72.8 and Net Tangible Assets Summary as at: 30 September 2007 $ 9.10 Premium/(Discount) to NTA Pre-tax NTA $ % Post-tax NTA $ % AUI seeks, through portfolio management, to manage its risk and improve its income from dividends and other income over the longer term. The company s funds are invested predominantly in the shares of companies listed on the Australian Stock Exchange. Managers AUI is internally managed. Key personnel are: Charles Goode AC: Appointed 1990, Chairman since Mr Goode is also the Chairman of ANZ Banking Group, Woodside Petroleum, Diversified United Investment and The Ian Potter Foundation. Graeme Moir: Appointed 1976, has 44 years experience in the share investment field. Principal of Moir s Investment Service and a Director of Graeme Moir and Associates and Diversified United Investment. Dr P John Rose AO: Appointed 2000, Governor of The Ian Potter Foundation. Formerly the Sidney Myer Professor of Commerce and Bus. Administration at Melbourne University and Director of The Melbourne Business School, Advisor to the Prime Minister, Commissioner of the City of Melbourne, and a Director of Woodside Petroleum. Peter Wetherall: Appointed 2001, 26 years experience in the Australian share market as a stockbroker and funds manager. MD of Wallara Asset Management. Ronald Dewhurst: Apponted 2005, 30 years experience in investment and financial services. CEO of IOOF Group et al. Dividend Policy To pay dividends which, over time, grow faster than the rate of inflation. $10 $ 9.30 Grossed Up Yield % 3.5 DPS (Historical) 2 Dividend Yield % 2.5 Market Capitalisation ($m) Ordinary Shares (m) 85.6 First Listed 1 Jan 74 $7.00 $ ¹Calculated by company for 2007 financial year ended 30 June. Excludes borrowing costs. 16 Excess Return/Risk Ratio 3 Year Annualised Compound Total Returns Shareholder 28.3% Benchmark 26.6% Portfolio 27.2%

17 Brickworks Investment Company (BKI) Investment Mandate: Australian listed equities Manager: Souls Funds Management Benchmark: S&P ASX300 Accumulation Index Management Fee: 6%¹ No Top Holdings as at: 30 Sep 07 National Australia Bank 15.0 BHP Billiton 9.6 Commonwealth Bank 9.6 New Hope Corporation 8.1 St. George Bank 4.1 Woolworths 4.0 Woodside Petroleum 2.5 Wesfarmers 2.5 Macquarie Bank Campbell Bros. and Net Tangible Assets Summary as at: 30 September 2007 $ 9 Premium/(Discount) to NTA Pre-tax NTA $ 84-1% Post-tax NTA $ BKI invests with a long-term horizon in companies, trusts and interest bearing securities, with a focus on well-managed Australian businesses with a perceived profitable history and sound dividend or distribution growth prospects. The portfolio had been built over 15 years, prior to being acquired by BKI prior to its listing in Manager The portfolio is managed by Souls Funds Management ( Souls ), which is majority owned by the Washington H. Soul Pattinson Group. Souls is a boutique fund manager specialising in management of Australian equity portfolios, managing portfolios for high net worth and wholesale clients. The company has been established for eight years (founded as Veritas Investment Management). Messrs Robert Millner and Alex Payne had primary responsibility for the Brickworks portfolio from 1998 until it was acquired by BKI, both have remained on the BKI Board and the Investment Committee (the third member of the Investment Committee is appointed by Souls) % of Total Portfolio 59.9 Dividend Policy BKI intends to pay out substantially all realised profit after tax, excluding realised capital profit from disposal of investments or returns of capital, subject to the discretion of the Directors. $0 $ 0 Grossed Up Yield % 5.0 DPS (Historical) 5.3 Dividend Yield % 3.5 Market Capitalisation ($m) Ordinary Shares (m) First Listed 12 Dec 03 $ Year Annualised Compound Total Returns Shareholder 2% Benchmark 26.6% Portfolio 18.9% ¹Management fee includes an administration fee of 5% pa payable to Souls Funds Management. Estimated by company for year ended 30 June Excess Return/Risk Ratio

18 Long/Short Australian equities Cadence Capital (CDM) Manager: Cadence Asset Management Pty Ltd Benchmark: All Ordinaries Accumulation Index Management Fee: 1. 1 Yes 2 Top Holdings as at: 30 Jun 07 Sector Portfolio Gross % Mariner Bridge 9.1 Everest B&B Alt. Inv. 8.7 DWS Advanced 6.4 Credit Corp 4.3 McMillan Shakespeare 3.9 Customers 3.6 iinet 3.3 QBE Insurance 3.1 Seven Network Lihir Gold Service Stream Jabiru Metals Melbourne IT 2.6 Consoldiated Minerals Reckon Babcock & Brown 2.3 Photon Group 2.3 RR Australia Henderson Group Ausdrill % of Total Portfolio 7 and Net Tangible Assets Summary as at: 30 September 2007 $ 1.12 Premium/(Discount) to NTA Pre-tax NTA $ % Post-tax NTA $ Estimated Fully Diluted post-tax NTA 3 $ % The Manager s strategy is designed to capture not only necessary fundamental information but also the underlying trend for a particular security (technical analysis). This process reflects the Manager s belief that Security prices are influenced by fundamental information, and the belief that markets and Security prices behave in trends. Manager Cadence Asset Management (CAM) was established by Karl Seigling in Mr Seigling is also Chairman of CDM. Mr Seigling has over 10 years investment experience in the financial services sector gaining experience with Deutsche Morgan Grenfell in Australia (Equities Research) and Goldman Sachs in London (Equities). CAM currently undertakes management services for a Wholesale Fund and CDM. CDM commenced investing from October 2005 and had $7.4 million under management as at 30 June 2006, listing on ASX following an IPO that raised approximately $23.5m in December CDM intends to pay dividends from the profit dividend and interest income it receives, franked to the extent possible. $0 $ 1.16 Grossed Up Yield % 6.2 DPS (Historical) 5.0 Dividend Yield % 4.3 at month end Market Capitalisation ($m) 3 Ordinary Shares (m) 27.0 Options (m) 26.3 Fully Diluted³ (m) 53.3 $ This area left blank intentionally Risk/Excess Return Ratio Annualised Compound Total Returns Shareholder Benchmark Portfolio 1 Management Fee calculated on gross value of portfolio without deduction of funds borrowed to acquire assets. 2 2 of returns in excess of the All Ordinaries Accumulation Index (AOAI). Where the AOAI is negative, 2 of any increase in the value of the portfolio. 3 ~26.6 million options exercisable on or before 31 March 2008 at $1.16 per option (pre-tax NTA at 31 October 2006). 18

19 Australian listed equities & property Carlton Investments (CIN) Manager: (internally managed) Benchmark: S&P ASX300 Accumulation Index Mgt Exp Ratio: 9%¹ No Top Holdings as at: 30 Sep 07 Amalgamated Holdings 29.5 National Australia Bank 14.2 BHP Billiton 4.5 ANZ Banking Group 4.2 St George Bank 3.8 Westpac Banking Corp 3.8 Commonwealth Bank 3.7 Perpetual 3.4 Gowing Bros. 3.1 AGL Energy Coles Group 2.2 Bank of Queensland Adelaide Bank Alinta 1.7 Bluescope Trust Company Santos Rio Tinto 1.1 James Hardie West Aust. News 78 6 % of Total Portfolio 78.6 and Net Tangible Assets Summary as at: 30 September 2007 $ 20 Premium/(Discount) to NTA Pre-tax NTA $ % Post-tax NTA $ % To acquire and hold, for the long term, units and shares in entities listed on the Australian Stock Exchange. It is the Board s intention to only dispose of investments through takeovers, mergers or other exceptional circumstances that may arise from time to time. CIN also has three controlled entities being Carlton Hotel Ltd, Eneber Investment Company Ltd and The Manly Hotels Pty Ltd. Managers CIN is internally managed. Key personnel are: Alan Rydge - Chairman Graeme Herring AM Anthony Clark AM Dividend Policy The company expects to pay consistent dividends out of the its consolidated profit before special dividends and gains on disposal of investments. $ 20 Grossed Up Yield % 4.0 DPS (Historical) 6 Dividend Yield % 2.8 Market Capitalisation ($m) Ordinary Shares (m) 26.5 First Listed 30 Jun 70 Preference Shares (m) 0.1 Cumulative 7% pa - Fully Diluted (m) 26.6 $30 $20 $ ¹This is the estimated MER calculated as total administration expenses divided by average assets at market value at 30 June Excess Return/Risk Ratio 3 Year Annualised Compound Total Returns Shareholder 23.4% Benchmark 26.6% Portfolio 2%

20 Australian listed equities Century Australia (CYA) Manager: 452 Capital Benchmark: S&P ASX300 Accumulation Index Management Fee: Yes¹ Top Holdings as at: 30 Sep 07 BHP Billiton 8.8 National Australia Bank 8.1 Telstra 5.4 Insurance Aust. Group 5.2 AMP 4.7 Westpac Banking 4.4 Alumina 4.1 ANZ Banking Group 3.8 Coles Group 3.7 Fairfax Media % of Total Portfolio 51.7 $ 1.36 Grossed Up Yield % 9.5 DPS (Historical) 9.0 Dividend Yield % 6.6 Market Capitalisation ($m) Ordinary Shares (m) First Listed 8 Apr 04 Performance Rights (m) 1 Conversion Yearly Fully Diluted² (m) and Net Tangible Assets Summary as at: 30 September 2007 $ 1.35 Premium/(Discount) to NTA Pre-tax NTA $ 2-4.9% Post-tax NTA $ 1.35 % Estimated Fully Diluted post-tax NTA ² $ 8 5.4% CYA aims to provide long-term capital growth and income by investing in quality, undervalued Australian companies. Companies must display financial strength, proven management and an established and sustainable business model based on a strong bottom-up approach. Managers CYA s investment portfolio is managed by 452 Capital. The company was founded in 2002 by Peter Morgan and Warwick Negus as an independent fund manager focused on the management of assets in the Australian sharemarket. 452 Capital achieved a AAA rating from Standard & Poors in Key personnel are: Peter Morgan: Co-founder and Investment Director Suellyn Morgan: Senior Portfolio Manager Mary Feros: Senior Portfolio Manager Nathan Parkin: Equity Analyst Zeljka Damjanovic: Equity Analyst The company will, to the extent that it is prudent, pay dividends from the profit, dividend and interest income it receives from its investments. will be franked to the extent that franking credits permit. $ Excess Return/Risk Ratio ¹ & ²1 of the gross total return of the Portfolio that is in excess of the benchmark plus a margin of 3% over the previous 12 months.the performance fee is paid in deferred ordinary shares (up to 10,000,001 shares prior to 30 June refer to prospectus for full details) but after 1 July 2009, the investment manager will be entitled to an annual performance fee rather than shares Year Annualised Compound Total Returns Shareholder 21.1% Benchmark 26.6% Portfolio 16.6%

21 Australian listed equities Choiseul Investments (CHO) Manager: Milton Corporation Benchmark: All Ordinaries Accumulation Index Mgt Exp Ratio: 0.1¹ No Top Holdings as at: 30 Jun 07 National Australia Bank 1 QBE Insurance Group 9.2 Washington H Soul Pat 7.7 Milton Corporation 6.9 Commonwealth Bank 6.0 St. George Bank 4.2 BHP Billiton 4.1 Brickworks 2.6 Perpetual 2.5 Bank of Queensland 2.5 and Net Tangible Assets Summary as at: 30 September 2007 $ 6.55 Premium/(Discount) to NTA Pre-tax NTA $ % Post-tax NTA $ % CHO seeks to invest for the long-term in well managed companies and trusts that have a profitable history and the likelihood of paying increasing dividends. CHO invests in the shares, units and interest bearing securities of these entities. The company will not sell assets simply to increase distributions for shareholders, with capital profits being reinvested. CHO was established in 1911 and listed in Managers The company is managed by Milton Corporation ( MLT ). MLT is also a listed investment company with origins dating back to MLT has built a diversified portfolio which is intended to reduce investors risk and applies a disciplined adherence to long standing, successful investment philosophy through experienced management and board of directors % of Total Portfolio 55.7 Objective is to pay increasing fully franked, ordinary dividends to its shareholders. will be paid out of operating profits excluding any gains made on the disposal of its portfolio investments. $7.00 $ 6.70 Grossed Up Yield % 4.6 DPS (Historical) 2 Dividend Yield % 3.2 Market Capitalisation ($m) Ordinary Shares (m) 8 First Listed 28 Jul 71 $5.25 $ ¹Calcualted as total administration expenses per annum as at 30 June Excess Return/Risk Ratio 3 Year Annualised Compound Total Returns Shareholder 19.7% Benchmark 26.4% Portfolio 2%

22 Australian small equities Contango Microcap (CTN) Manager: Contango Asset Management Benchmark: S&P ASX All Ordinaries Accumulation Index Management Fee: 5% Yes¹ Top Holdings as at: 30 Sep 07 Mount Gibson Iron 4.9 Western Plains 3.7 Ausenco Jabiru Metals 2.5 Mineral Resources Contango Absolute 2.3 Sphere Investments 2.3 Neptune Marine 2.2 Oakton 1.9 OM Holdings 1.9 Mitchell 1.9 VDM Group Contango Capital The Reject Shop Mundo Minerals 1.7 Midwest Corporation 1.7 Coote Industrial Avoca Resources Industrial Minerals Corpo RCR Tomlinson 43 3 % of Total Portfolio 43.3 and Net Tangible Assets Summary as at: 30 September 2007 $ 1.95 Premium/(Discount) to NTA Pre-tax NTA $ Post-tax NTA $ % CTN invests in small and microcap companies (defined companies with a market cap of less than m) with the objective of outperforming its benchmark over the medium to long-term while providing for the payment of regular fully franked dividends. The Manager uses business cycle approach to identify key themes that will be important drivers of performance for particular sectors and industries. The top down research is combined with rigorous company analysis to identify stocks that are likely to deliver strong results and out perform. Manager Contango Asset Management ( the Manager ) was established in 1998 by David Stevens and Stephen Babidge, formerly senior executives of HSBC Asset Management, as a specialist Australian equities fund manager. Its focus is on generating first quartile performance returns for its clients. The Manager s investment team owns 5 of the equity in the Manager with the intention of closely aligning the interests of the investment team with the interests of clients. The company intends to pay dividends from the dividends and interest income it receives from its investments and from its realised gains made on the sale of investments that form part of the portfolio. $2.60 $ 2.29 Grossed Up Yield % 7.5 DPS (Historical) 1 Dividend Yield % 5.2 Market Capitalisation ($m) 15 Ordinary Shares (m) 77.1 First Listed 25 M ar 04 $ Year Annualised Compound Total Returns Shareholder 37.1% Benchmark 26.4% Portfolio 29.5% ¹15% of returns in excess of the return achieved by the S&P ASX All Ordinaries Accumulation Index. Where the benchmark has a negative return over a calculation period, 15% of any positive return generated. 22 Excess Return/Risk Ratio $400 $300

23 Diversified United Investment Co. (DUI) Investment Mandate: Aust. Equities; fixed interest; property Manager: (internally managed) Benchmark: S&P ASX300 Accumulation Index Mgt Exp Ratio: 0.17% No Top Holdings as at: 30 Jun 07 BHP Billiton 9.0 Woodside Petroleum 7.8 Rio Tinto 5.9 QBE Insurance 5.4 ANZ Banking Group 5.0 Commonwealth Bank 4.7 Alumina 4.3 Westfield Group 4.1 Westpac Banking Corp 3.5 National Australia Bank 3.2 Tabcorp 2.9 Perpetual CSL 2.3 Suncorp-Metway 2.3 Brambles St. George Bank Southern Cross 1.9 Woolworths 1.9 Transurban AGL Energy % of Total Portfolio 74.6 and Net Tangible Assets Summary as at: 30 September 2007 $ 4.15 Premium/(Discount) to NTA Pre-tax NTA $ % Post-tax NTA $ % DUI seeks a mixture of current income and longer term capital gains within acceptable levels of risk. To this end DUI takes a medium to long-term view to invest in a diversified portfolio of Australian equities, fixed interest securities, listed property trusts and short term deposits, with occasional investments in international equities. Individual investments are purchased on the basis of the Directors assessment of their prospects for income and growth. Managers DUI is internally managed. Key personnel are: Charles Goode AC: Appointed 1991, Chairman since Mr Goode is also the Chairman of ANZ Banking Group, Woodside Petroleum and The Ian Potter Foundation. Graeme Moir: Appointed 1991, has 44 years experience in the share investment field. Principal of Moir s Investment Service and a Director of Graeme Moir and Associates. Martyn Myer: Appointed 1991, is also a Chairman of CogState, Director of SP AusNet, President of the Howard Florey Institute and a Director of several private companies. Rupert Myer: Appointed 2002, is also a director of AMCIL, serves as Chairman of The Myer Family Company and is a Vice President of The Myer Foundation. To provide a steady, consistent growing stream of fully franked dividends. $4.20 $ 4.30 Grossed Up Yield % 4.0 DPS (Historical) 1 Dividend Yield % 2.8 Market Capitalisation ($m) Ordinary Shares (m) First Listed 19 Dec 91 $2.95 $ Year Annualised Compound Total Returns Shareholder 35. Benchmark 26.6% Portfolio 27.5% ¹Calculated by company for 2007 financial year ended 30 June. Excludes borrowing costs. 23 Excess Return/Risk Ratio