Bentham Wholesale Syndicated Loan Fund

Bentham Wholesale Syndicated Loan Fund Quarterly Commentary December 2010 Investment Manager Bentham Asset Management ABN 92 140 833 64 AFSL 356199 Responsible Entity Challenger Investment Services Limited ABN 44 119 605 36 AFSL 320505

Performance The Bentham Wholesale Syndicated Loan Fund (the Fund ) returned 4.61 percent (before fees*) in the December quarter, outperforming the benchmark Credit Suisse Loan Index (hedged into AUD) by 0.2 percent. Over the last 12 months the Fund returned 16.23 percent (before fees*), outperforming the benchmark by 2.2 percent. The Fund outperformed the UBSA Bank Bill Index by 3.3 percent over the quarter and 11.5 percent over the last 12 months. Chart 1: Syndicated Loan Fund annual returns relative to benchmark 0.0 60.0 50.0 40.0 30.0 20.0 10.0 - -10.0-20.0-30.0-40.0 5.0 3.3 8.4 8.1 9.5 8.2 Syndicated Loan Fund Gross Return (before fees) Credit Suisse Leveraged Loans Index (AUD) 5.9 3.0-28.2-2. 5.2 48.0 16.2 14.0 As at 31 Dec 10 2004 2005 2006 200 2008 2009 2010 Source: Challenger, Bloomberg, Credit Suisse. The information in Chart 1 is presented on a before fees basis. Gross returns are calculated by using pre-distribution month-end withdrawal prices which assumes income is reinvested in additional units with management costs deducted added back. Returns after fees are included in the information presented in tables 4a and 4b on page. Returns may be volatile and may vary from year to year. Past performance is not a reliable indicator of future performance. At month end the Fund had a yield to maturity of 10. percent, with the credit yield spread^ decreasing by 29 basis points (bps) to 4.92 percent during the month. The Fund had an interest rate duration of 0.21 years and a credit duration of 3.3 years. Fund positioning The Fund s asset allocations are 4.4 percent in syndicated loans, 9.5 percent in high yield bonds, 3.9 percent in CLOs, 5.8 percent in cash, and 6.5 percent in derivative hedges. During the quarter, aggregate exposure of the portfolio to the loan market decreased by 1.1 percent. The Fund remains highly diversified with the top 10 issuers only making up.9 percent of the Fund s exposure. This compares with the index top 10 concentration of 12.4 percent. The Fund s exposure to CLOs has increased from 1.0 percent to 3.9 percent in the quarter. The Fund s three largest industry exposures are 9 percent in healthcare, education and childcare, 6.5 percent in electronics, and 5.9 percent in broadcasting and entertainment. The Fund s top three company exposures are 1.2 percent in Charter Communications Operating, 0.9 percent in Avaya, and 0.8 percent in Coleto Creek Power. During the quarter, the Fund increased its exposure to Aeroflex Incorporated, Ascend Learning, and Ntelos, with decreased exposures to Bausch & Lomb Incorporated, ISP Chemco, and Helix Energy Solutions. During the quarter 28 of the 29 new term loans purchased by the Fund through the primary market had Libor floors. A Libor floor (or Bank bill floor in Australian terms), pays the higher of the LIBOR rate or the floor rate. The Libor floors increase the yield on the Fund as they ranged from 1.5 percent to 1.5 percent, compared with a US three month Libor of 0.3 percent. In aggregate, the Fund has 28 percent exposure to loans with LIBOR floors, compared with the index of 31 percent. Table 1. Monthly performance of the Fund Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year 2010 2.5 0.91 1.1 1.85 0. 0.25 1.30 1.06 1.12 2.06 0.1 1.56 15.26 2009.1 1.61 1.95.66 6.0 5.93 3.68 2.98 3.53 1.95 0.82 2.1 55.88 2008 2.14 1.89 0.1 2.80 1.91 0.3 0.03 0.50 3.22 14.55 10.13 5.44 28.80 200 1.22 0.61 0.89 0.98 0.0 0.43 1.66 0.36 0.3 1.12 0.58 0.84 5.00 2006 0.85 0.82 0.3 0. 0.50 0.42 0.65 0.6 0.66 1.00 0.2 0.91 8.56 2005 0.4 0.64 0.53 0.13 0.48 1.09 0.96 0.65 0.58 0.39 0.55 0.56.56 2004 1.21 0.98 1.26 1.19 4.3 Past performance is not necessarily indicative of future performance. Returns may be volatile and may vary from month to month and year to year. Source: Challenger. * For information about return calculations after fees please refer to the Returns Tables on page 6. ^ Credit yield spread is yield to maturity above the duration adjusted risk free bond rate Bentham Syndicated Loan Fund Page 2 of 9

Market commentary The US syndicated loan market was one of the strongest performing credit markets in the quarter. All risk segments of the high yield market had positive excess returns, with the CCC and distressed segments outperforming, followed by single-b s and BBs. The discount margin (to maturity) of the Credit Suisse Leveraged Loan Index decreased by 4 bps during the month to 569 bps. Chart 2: Loan market historical spread over libor CS LL Index Discount Margin to Maturity % 15% 9% 3% Dec-92 CS LL Index Discount Margin to Maturity (Currently 5.69%) CS LL DM to Maturity (Average) Dec-94 Dec-96 Dec-98 Dec-00 Source: Credit Suisse 31-12-1991 to 31-12-2010 A key theme in financial markets throughout the quarter was the underperformance of US treasury bonds. This had no effect on the loans market given the floating rate nature of the interest rate risk. The quarter started with US and European economic data continuing to indicate sluggish economic recoveries. However, announcements from the US Federal Reserve board early in November of the intent to make a second round of treasury bond purchases (QE2) resulted in US 10 year nominal bond yields decreasing to a low of 2.39 percent. Interestingly, market inflation expectations continued to increase despite falling nominal yields. However, market sentiment changed in early December after better than expected US retail sales and a stimulatory tax compromise in the US. These announcements resulted in US treasury bond yields increasing significantly in December which resulted in treasuries becoming the worst-performing asset class in the quarter. Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Corporate credit sectors performed well despite the turbulence in government bond markets. Renewed concerns in the quarter over the credit risk of several Euro area sovereigns resulted in credit default swap spreads from the affected economies increasing. However, on the most part, credit markets performed well with the best returning sectors including the US high yield bond and syndicated loan markets. All other credit sectors outperformed with the exception of bank lower tier 2 securities which were affected by European government comments regarding sovereign support. Notably, the sovereign concerns also spilled into Euro corporate credit markets with Euro high yield bonds underperforming US high yield bonds on an excess return basis by 5.03 percent. Market themes and outlook Defaults The default rate for the Syndicated Loan Fund in 2010 was 0.3 percent. This compares favourably with the Moody s US Leveraged Loan market default rate which ended 2010 at 2.8 percent. The 2010 market default rate was the lowest figure since July 2008, and down from 4.1 percent at the end of the previous quarter and 11.9 percent at the end of 2009. Moody s is forecasting the global high yield default rate to fall by a further 1.2 percent at the end of 2011. Key factors supporting a low default rate forecast include low but positive GDP forecasts, low liquidity requirements, high levels of defaults over the last two years and supportive capital markets. Chart 3: High yield and loan defaults 15% 9% 3% Moody's Global HY Default Rate by number (currently 3.1%) S&P LCD Lev Loans Default Rate 15% 9% 3% Dec-91 Dec-93 Dec-95 Dec-9 Dec99 Dec-01 Dec-03 Dec-05 Dec-0 Dec-09 Source: Moody s, S&P LCD 31-12-1991 to 31-12-2010 Bentham Syndicated Loan Fund Page 3 of 9

Table 2. 2010 US loan market defaults 2010 H1 Defaults Date Loan Defaults Market Held SLF Short by SLF Position** 1-Jan-10 Thomas Nelson 5-Jan-10 International Aluminum 5-Jan-10 Regent Broadcasting -Jan-10 Gateway Casino (New World Gaming) 22-Jan-10 Jacuzzi Brands 2-Jan-10 Natural Products 3-Feb-10 Movie Gallery 3-Feb-10 Spheris Operating 10-Feb-10 Penton Media 19-Feb-10 Mega Brands 24-Feb-10 White Birch Paper Company 10-Mar-10 EnviroSolutions Holdings 30-Mar-10 Electrical Components International 30-Mar-10 Xerium Technologies 30-Mar-10 Xerium Technologies 16-Apr-10 Green Valley Ranch 11-May-10 Chem Rx 1-May-10 Neff Rental 1-Jun-10 Network Communications 10-Jun-10 National Envelope 2010 H2 Defaults Date Loan Defaults Market Held by SLF 2-Jul-10 Medical Staffing Network 9-Jul-10 Oriental Trading 28-Jul-10 American Safety Razor SLF Short Position** 4-Aug-10 Boston Generating 4 18-Aug-10 FGIC Corp 31-Aug-10 Graceway Pharmaceuticals 30-Sep-10 Workflow Management 19-Oct-10 TerreStar Networks 1-Nov-10 American Media Op 1-Nov-10 Local Insight Regatta Ho 1-Nov-10 Vertis 13-Dec-10 RHI Entertainment Source: Bentham, Bloomberg, JP Morgan ** SLF Short Positions are via a short position in the LCDX index. Source: Bentham, Bloomberg, JP Morgan ** SLF Short Positions are via a short position in the HY CDX index. Credit quality Credit conditions remained strong throughout 2010 as upgrades outnumbered downgrades for the past 15 consecutive months dating back to September 2009. JPM reports that in total there were 349 upgrades totalling $334 billion of bonds, compared with 241 downgrades totalling $19 billion, which equates to an upgrade-to-downgrade ratio by issuer of 1.4:1. The positive ratings transition is also reflected in the improved credit quality of the CS Leveraged Loan Index during 2010 with the reported quality improving from single B in December 2009 to split BB in December 2010. Chart 4: Loans market Ratings activity 10x Upgrades to Downgrades 0x -10x -20x -30x Mar-00 Mar-02 Mar-04 Mar-06 Source: S&P LCD, Bentham Upgrades Downgrades Mar-08 Mar-10 Bentham Syndicated Loan Fund Page 4 of 9

Recovery rate The recovery rate of loans in default has remained relatively resilient. Defaulted loan recoveries (according to JP Morgan) have averaged 2.8 percent in 2010, compared to a Moody s long-term average recovery rate of 65.6 percent. Chart 5. Loan recoveries have remained resilient 100 90 80 0 60 50 40 30 20 Senior Unsecured Senior Secured assumes a below average recovery rate of 60 percent, using a 0 percent recovery rate the implied default. Consequently, loan market pricing offers either: 1. high spread for low credit risk, or 2. significant liquidity premium, or 3. compensation for a low US yield curve. Or a combination of these three factors. Relative to the high yield bond market, the implied default rates on loans is significantly higher. Loans have typically experienced lower losses than high yield. Chart 6. Loan spreads and the default are both falling albeit defaults seem to be falling faster than loan spreads 14% 14% 10 0 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Source: JP Morgan As at 31-12-2010 1 8% 1 8% Valuations Notwithstanding the fall in defaults over the quarter and the past year, the market still seems to be pricing in a higher default rate than that forecast by the rating agencies. The market is currently pricing in a constant default rate of 8.6 percent for the next three years, compared with Moody s rating agency forecasting a rate of 1.90 percent by the end of 2011. This calculation 4% 2% Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-0 Jun-08 Jun-09 Jun-10 CS LL Index Discount Margin to Maturity (Currently 5.69%) S&P LCD Lev Loans Default Rate 4% 2% Source: Credit Suisse, S&P LCD 31-12-1998 to 31-12-2010 Table 3: Select new issues purchased by the Fund in the December quarter 2010 Issuer Asset Tranche LIBOR Margin LIBOR Floor Issue Price Moody Rating S&P Rating Industry Allen Systems Group, Inc. Term Loan Tranche B 4.5% 1.5% 98.50 Ba2 BB- Electronics Swift Transportation Co., LLC Term Loan Tranche B 4.5 1.5 99.00 B1 B- Cargo Transport Novelis, Inc. Term Loan Tranche B 3.5% 1.5 99.00 Ba2 B+ Mining DaVita Inc. Term Loan Tranche B 3.0 1.5 99.50 Ba2 BB- Healthcare Services Bentham Syndicated Loan Fund Page 5 of 9

Chart. Loans remain conservatively priced to default forecasts 45% 4 35% 3 25% 2 15% 1 5% Spread Implied Constant Default Rate to Maturity (Recovery Rate 5) Spread Implied Constant Default Rate to Maturity (Recovery Rate 6) Actual S&P LCD Lev Loan rolling 12 mth Default Rate (issuer weighted) Previous actual S&P LCD Lev Loan Default Rate peak, 29/12/2000, 8.2% Spread Implied Constant Default Rate to Maturity (Recovery Rate 5), 31/12/2010 Spread Implied Constant Default Rate to Maturity (Recovery Rate ), 31/12/2010. Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-9 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-0 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Updated to 31-12-2010 Senior secured historical average recovery rate issuer weighted loans Moodys 1982-2008 69.9% Assumptions in solving for (implied) Constant Default Rate: Required Risk Premium = Spread - (Implied Default Rate x Loss Given Default) Loan Market: Risk Premium of 225 bp Source: Bentham, Credit Suisse, S&P LCD Outlook and risks Outlook and risks The outlook for syndicated loans remains positive with the loan market pricing in a higher default rate than forecasts. Credit fundamentals have also been steadily improving and forecasts of positive, albeit low, economic growth are expected to allow for further improvement. These economic conditions in combination with supportive capital market conditions are supportive of lower default rates in 2011. Current loan spreads are still higher than average and should benefit from continued demand for higher income related asset classes where relatively low government bond yields persist. However, the key risk to the return outlook remains in the sustainability of the economic recovery in the US. The transition from public to private sector demand is still in progress. The US economy still has challenges relating to its municipal fiscal deficits, absorbing higher commodity prices and a persistent weakness in housing data. Other risks that could negatively impact the loans include the impact of Chinese tightening and contagian from the European sovereign. Chart 8. Loans yield chart in Australian dollars Dec-92 Dec-94 Dec-96 CS Leverage loan index in AUD yield to maturity 1 Month Bank Bill Rate Dec-98 Yield of the CS LL Index: 1M AUD Bank Bill plus CS LL Index discount margin Dec-00 Dec-02 Source: Credit Suisse, Bloomberg 31-12-1992 to 31-12-2010 Dec-04 Dec-06 Dec-08 Dec-10 2 18% 1 14% 1 8% 4% 2% Bentham Syndicated Loan Fund Page 6 of 9

Table 4a. Bentham Syndicated Loan Fund returns. Bentham Syndicated Loan Fund returns CS Leveraged Loans Index (AUD Hedged) As at 31 December 2010 Total Return^ (after fees) % Gross Return (before fees) % CS LL Index* (AUD) % Excess Return % 1 Month 1.56 1.63 1.62 0.01 3 Months 4.38 4.61 4.33 0.2 6 Months 8.06 8.52 8.53 0.00 1 Year 15.26 16.23 13.95 2.2 2.93 0.8 1.6 1.36 2 Year (p.a.) 34.04 35.1 29.85 5.31.39 0.2 2.22 2.39 3 Years (p.a.) 8.55 9.46 6.81 2.65 14.28 0.19 3.01 0.88 5 Years (p.a.).84 8.4 6.30 2.43 11.15 0.22 2.51 0.9 Since Inception (p.a.) 8.23 9.12 6.69 2.43 11.15 0.22 2.26 1.08 Positive months 65 65 Negative Months 11 11 Positive months (%) 85.5 85.5 Worst month (%) -14.49-14.89 Best month (%).3.85 Average month (%) 0. 0.58 Fund Size AUD $1,00.0M Months since inception 6 ^ Total returns (after fees) are calculated on the basis of the fees charged within the Bentham Wholesale Syndicated Loan Fund and no not reflect total returns (after fees) of the Bentham Professional Syndicated Loan Fund where the fees are slightly higher. * Benchmark is the Credit Suisse Leveraged Loans Index (Hedged into AUD). Sharpe Ratio is the Excess Return divided by the Annualised Standard Deviation. Tracking Error is the Standard Deviation of the Excess Return. Information Ratio is the Excess Return divided by the Tracking Error. The inception of the fund was 16-Aug-2004. Total Returns are calculated after fees using pre-distribution month end withdrawal unit prices, and assumes all income is reinvested in additional units. Gross returns are calculated by adding back the Management Costs deducted. Past performance is not necessarily indicative of future performance. Returns may be volatile and may vary from year to year. Source: Challenger, State Street & Bloomberg. Table 4b. Bentham Syndicated Loan Fund returns. Bentham Syndicated Loan Fund returns UBSA Bank Bill Index As at 31 December 2010 Total Return* (after fees) % Gross Return (before fees) % UBSA Bank Bill Index** % Excess Return % 1 Month 1.56 1.63 0.42 1.21 3 Months 4.38 4.61 1.24 3.3 6 Months 8.06 8.52 2.46 6.06 1 Year 15.26 16.23 4.66 11.5 2.93 3.62 2.95 3.60 2 Year (p.a.) 34.04 35.1 4.06 31.11.39 3.62.49 3.58 3 Years (p.a.) 8.55 9.46 5.23 4.23 14.28 0.35 14.5 0.35 5 Years (p.a.).84 8.4 5.69 3.05 11.15 0.31 11.38 0.31 Since Inception (p.a.) 8.23 9.12 5.68 3.44 11.15 0.31 11.38 0.31 Positive months 65 6 Negative Months 11 0 Positive months (%) 85.5 100.0 Worst month (%) -14.49 0.25 Best month (%).3 0.1 Average month (%) 0. 0.46 Fund Size AUD $1,00.0M Months since inception 6 *Total Returns are calculated using pre-distribution month end withdrawal unit prices, and assumes all income is reinvested in additional units. Gross returns are calculated by adding back the management costs deducated. Please refer to the PDS for more information on management costs. ** Comparison with the UBSA Bank Bill Index. Sharpe Ratio is the excess return divided by the annualised standard deviation. Tracking error is the standard deviation of the excess return. Information ratio is the excess return divided by the tracking error. Fund inception of 16 August 2010. Past performance is not necessarily indicative of future performance. Returns may be volatile and may vary from year to year. Source: Challenger, State Street Std Dev Std Dev Sharpe Ratio Sharpe Ratio Track Error Track Error Info Ratio Info Ratio Bentham Syndicated Loan Fund Page of 9

Table 5. Fund Statistics as at 31 December 2010 Top 10 company exposures Issuer Charter Communications Operating, LLC 1.2% Avaya Inc. 0.9% Coleto Creek Power, LP 0.8% Greektown Superholdings 0.8% Amadeus IT Group SA 0.8% MCC Iowa LLC (Mediacom Broadband) 0.% Onex Carestream Finance LP 0.% Prestige Brands, Inc. 0.% CCM Merger Inc. (Motor City Casino) 0.% Travelex 0.% Exposure by split rating Split Rating Cash 5.% Derivative 4. AAA 0. AA 0.3% A 0.5% BBB 0.8% Split BBB 2.1% BB 21.8% Split BB 1.2% B 35.8% Split B 3.9% NR 3.2% CCC & Below 4. Exposure by debt seniority Cash 5.% Derivative 4. Asset Backed Security 3.8% Senior Secured 6.% Senior Subordinate 2.1% Senior Unsecured 6.1% Subordinated 0.4% Equity 0.% Total 10 Top 10 industry exposures Issuer Healthcare, Education and Childcare 9. Electronics 6.5% Broadcasting and Entertainment 5.9% Hotels, Motels, Inns, and Gaming 5.2% Diversified/Conglomerate Manufacturing 5. Finance 4.5% Chemicals, Plastics and Rubber 4.4% CLO 4.2% Containers, Packaging and Glass 4. Diversified/Conglomerate Service 3.9% Beverage, Food and Tobacco 2.8% Maturity profile 0 to 1 years 10.9% 1 to 3 years 22.9% 3 to 5 years 3.1% 5 to years 24. to 10 years 3.5% > 10 years 1.1% Regional exposures (by domicile) Cash 5.% Derivative 4. Americas 6.% Australia & NZ 0.5% Europe 12.4% Portfolio summary statistics Yield to Maturity (%) 10. Running Yield (%) 8.45 Credit Spread (yield above risk free) (%) 4.92 Credit Spread - Modified Duration 3.30 Interest Rate - Modified Duration 0.21 Weighted Average Life (years) 3.12 Number of securities 589 Number of Issuers 365 Floating rate coupon exposure (% of port) 8 Bentham Syndicated Loan Fund Page 8 of 9

Contact us For retail investors Contact the Challenger Investor Services team on 13 35 66. For advisers Contact your state Business Development Manager or the Challenger Adviser Services team on 1800 621 009. Institutional investors and consultants Contact your state Institutional Business Development Manager. More information For more information on the Bentham Wholesale Syndicated Loan Fund, visit the Challenger website to download the Product Disclosure Statement (PDS) and latest Fund Profile. http://www.challenger.com.au/invest/benthamsyndicatedloanfund.asp http://www.challenger.com.au/funds/fundreports/slf062010.pdf Important Information The information in this document is current as at 31 December 2010 unless otherwise specified and is provided by Challenger Investment Services Limited ABN 44 119 605 33, AFSL 320505 the issuer of interests in the Bentham Wholesale High Yield Fund ASRN 088 90 224 (the Fund). It is intended as general information and not as financial product advice and has been prepared without taking into account any person s objectives, financial situation or needs. Because of that each person should, before acting on any such information, consider its appropriateness, having regard to their objectives, financial situation and needs. Each person should obtain a copy of the Fund s Product Disclosure Statement (PDS) and consider the information in the PDS before making any investment decisions. A copy of the PDS can be obtained from your financial planner, our Investor Services team on 13 35 66, or on our website: www.challenger.com.au. If you acquire or hold an investment in the Fund we will receive the fees and other benefits disclosed in the PDS for the Fund. We and our employees do not receive any specific remuneration for any advice provided to you. However, financial advisers (including Challenger Group companies) may receive fees or commissions if they provide advice to you or arrange for you to invest in the Fund. Some or all of the Challenger Group companies and their directors may benefit from fees, commissions and other benefits received by another Challenger Group company. Past performance is no indication of future performance. Any opinions expressed in this commentary (including as to future matters) may change. This is because outcomes may be affected by known or unknown risks and uncertainties that are not able to be presently identified. 11501/0211