Lonsec Update December 2009

1. Lonsec UpdateDecember 2009

2. Disclaimer, Disclosure and Warning IMPORTANT NOTICE: The following relates to this presentation prepared by Lonsec Limited ABN 56 061 751 102, AFSL No 246842 ("Lonsec") and should be read before making any investment decision about the product(s). Disclosure at the date of publication: Lonsec receive a fee from the fund manager for rating the product(s) using comprehensive and objective criteria. Lonsec’s fee is not linked to the rating outcome. Costs incurred during the rating process of international domiciled managers, including travel and accommodation expenses are paid for by the fund manager to enable on-site reviews. Lonsec does not hold the product(s) referred to in this document. Lonsec’s representatives and/or their associates may hold the product(s) referred to in this document, but detail of these holdings are not known to the Analyst(s). While Lonsec and the fund manager may be members of the Zurich Financial Services Australia group, usual fee arrangements apply and the association did not affect the rating process or outcome. Warnings: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is limited to “General Advice” and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (‘financial circumstances’) of any particular person. Before making an investment decision based on the rating or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances or should seek further advice on its appropriateness. If our General Advice relates to the acquisition or possible acquisition of particular financial product(s), the reader should obtain and consider the Product Disclosure Statement for each financial product before making any decision about whether to acquire a product. Disclaimer: This document is for the exclusive use of the person to whom it is provided by Lonsec and must not be used or relied upon by any other person. No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this document, which is drawn from public information not verified by Lonsec. Conclusions, ratings and advice are reasonably held at the time of completion but subject to change without notice. Lonsec assumes no obligation to update this document following publication. Except for any liability which cannot be excluded, Lonsec, its directors, employees and agents disclaim all liability for any error or inaccuracy in, or omission from, this document or any loss or damage suffered by the reader or any other person as a consequence of relying upon it.

3. Lonsec Update • Market Lessons from recent cycle • Importance of Asset Allocation • Benefits of active management • Case study: role of fixed interest in a balanced portfolio • GEMS exposure within global equities • Lonsec research enhancements • Top-down considerations • Risk Box • PRAC • Sector overlays for structural & implementation issues • Ratings update and sector themes

4. Markets can be very unpredictable Financial Year Returns (% p.a.) Source: Lonsec

5. The importance of asset allocation 90% of the variability of a client’s portfolio return is driven by Asset Allocation!

6. Setting the asset allocation framework Set asset allocation framework Ongoing monitoring Identify fund candidates Qualitative analysis Quantitative analysis Lonsec universe of more than 450 managed funds

7. Historical Risk/Return characteristics 10 years to September 2009 Source: Lonsec

8. Is there merit in paying for active management? 35 Outperformed Underperformed 30 25 Active Manager Average Outperformance -1.6% Active Manager Average Outperformance 2.1% 20 15 10 5 0 Peer group of 48 rated Australian equity managers Bull Market (Dec 04 – Dec 07) Bear Market (Dec 07 - Mar 09) Source: Lonsec

9. Active management less compelling in some sectors Role of active management in some sectors is less compelling Australian listed property • Sector is very concentrated – one stock dominates (Westfield 41%) • Market cap has fallen from $122bn (June 07) to $64bn (Aug. 09) • Only 8 stocks considered Investment Grade Australian fixed interest • Evidence suggests the sector has failed to add value after fees Source: Lonsec

10. Role of bonds in a diversified portfolio What does a ‘typical’ bond fund look like? UBS Australian Composite Bond Index Sector Allocation July 2009 (%) Government (25%) Corporate/Credit (41%) Semi Government (34%)

11. Fixed interest is not all the same

12. Know what you are exposed to ‘Look through’ analysis for fixed income funds Source: Lonsec

13. Australian versus Global Equities Rolling 3 year returns (% pa) Building a ‘global’ portfolio Australian versus Global Equities Rolling 3 year returns (% pa) • Recently Australian equities have outperformed international equities • But don’t be too tempted by the ‘short term’ • What happened in the last five years may not repeat in the next five

14. Consumer Discretionary Consumer Staples Energy Financials x A-REIT Health Care Industrials Information Technology Materials Telecommunication Services Utilities A-REITS Equities – sector concentration GICS Sector Composition – June 2009 S&P/ASX 200 MSCI ex Australia

15. Global Equity Fund Sector Themes • Greater incorporation of GEMS into global portfolios • A return to bottom-up fundamentals vs top down • Currency – strong AUD not helpful for unhedged portfolios. • Cost cutting is probably over.  Travel budgets back to normal.

16. A range of opportunities via active global funds - ‘look through’ analysis for global equity funds - overweight to emerging markets … needs to be monitored Source: Lonsec

17. Hedge Funds - an industry in transition

18. Lonsec — major process enhancements • More formal incorporation of ‘top-down’ views • Introduction of the Product Research Assessment Committee (PRAC) • Enhanced ‘knock-out’ criteria for direct property fund benchmarking • Increased tools – Bloomberg, SIRA • Corporate questionnaire

19. Lonsec — output enhancements • More expansive ‘using this fund’ section providing greater guidance of the typical performance characteristics of funds and risks • Punchier reports.  More opinion on key investment merits ‘up front’ • Chart pack • Introduction of Risk Boxes

20. Lonsec Risk Box “The Lonsec risk box aims to provide a graphical snapshot of a wide range of risks that may exist in a product (portfolio), not just those risks that can be statistically measured by volatility or standard deviation”

21. Lonsec’s priorities looking ahead • Ensure quality, timeliness and relevance of research “The challenge is to strike the right balance between providing quality research, sufficient product coverage and timeliness of the research effort” • Identify relevant risks • Ensure the mix of products and sectors on the Recommended List is right (sectors to add? sectors to consolidate?) • Broaden Lonsec’s research coverage to areas where there is adviser demand; eg: debt research,

22. JOHN RYAN National Sales &DistributionManager JIM BLACKBURN Head of Agribusiness KEVIN PROSSER Head of Property & Infrastructure MICHAEL ELSWORTH Head of Ratings –Income & Alternative Products AMANDA GILLESPIE Head ofInvestment Consulting PAUL PAVLIDIS Head of Ratings – Equity Managed Funds DON BEGBIE Head of Ratings Agribusiness STEVE NEWNHAM Northern States Sales Manager PETER GREEN Senior Investment Analyst Property & Infrastructure BRONWEN MONCRIEFF Senior Investment Analyst Managed Funds LIBBY NEWMANSenior Investment Analyst LUKASZ DE POURBAIXInvestment Consultant RICHARD ELLIS Investment Analyst Agribusiness TRACEY FRANKS Marketing Manager PETER FLYNN Senior Investment Analyst Property & Infrastructure LIN NGIN Senior Investment Analyst STEVEN SWEENEY SeniorInvestment Analyst Managed Funds ELEANOR MENITTIInvestment Consultant TOM BOURNE Investment AnalystAgribusiness CHRIS SCHRODER Senior Sales & Client Relationship Manager ANDREW COUTTSSeniorInvestment Analyst Property & Infrastructure DEANNE FULLER Senior Investment Analyst DUNCAN KNIGHT Senior Investment Analyst Managed Funds TBA Investment Consultant CAROLINE EDMONDS Sales & Client Relationship Manager THEMBI MATABISWANA Investment Analyst Property & Infrastructure BRAD STREET Investment Analyst Managed Funds RUI FERNANDES Investment Analyst SAM MORRIS Investment Analyst Property & Infrastructure ANDREW SCIFO Investment Analyst Managed Funds SHAILESH JAIN Investment Analyst VLADIMIR GAGOVIC Investment Analyst Managed Funds FARWAZ RASHID Investment Analyst Managed Funds Lonsec Limited Unlisted Research Team December 2009 GRANT KENNAWAY General Manager Research KATHY SAVAGE Research Assistant AMBER IRWIN Research Assistant TBA Research Manager

23. Research team responsibilities and experience

24. Sector teams – experience and size

25. New Products • Back to basics in many sectors – particularly income • GEMS and Asian Funds continue to flourish • Return to single asset property syndicates • Structured products still have a role – albeit at the margins

26. New funds rated – Responsible Investment • Responsible Investment – Ethical, SRI, ESG • ING Sustainable Investment Wholesale Australian Share Trust (HR)

27. Fund upgrades & downgrades • Responsible Investment Upgrades • Australian Ethical Smaller Companies Trust (IG to R) • Responsible Investment Downgrades • None

28. New funds rated – Australian Long Short Equities • Australian Long Short Equities • Aviva Investors Long Short Equity Fund (HR) • Wavestone Australian Equity Long Short Fund (R)

29. Fund Upgrades & Downgrades • Australian Long Short Equities Upgrades • None • Australian Long Short Equities Downgrades • Smallco Investment Fund (HR to R) • PM Capital Australian Opportunities Fund (R to IG) • Antares Lodestar Absolute Return Trust (R to IG) • EQT SGH Absolute Return Trust (R to IG)

30. New funds rated – Global Long Short Equities • Global Long Short Equities • K2 Select International Absolute Return Fund (R)

31. Fund upgrades & downgrades • Global Long Short Equities Upgrades • Five Oceans World Fund (R to HR) • Platinum International Fund (R to HR) • MLC Platinum Global Fund (R to HR) • Platinum European Fund (FW to R) • Global Long Short Equities Downgrades • PM Capital Absolute Performance Fund (R to IG) • Deutsche/REEF Global Opportunities Fund (FW to Closed-Wind Up)

32. Sector overlays – structural & implementation issues • For most investors, a robust and forward looking strategic allocation framework is a prudent approach • It is difficult (and time consuming) to ‘time’ the market … markets are very unpredictable • Some exceptions … • Model portfolios may sometimes need to respond to shorter-term asset/sector changes: • implementation issues … i.e. hybrid property in 2008 • structural issues … i.e. hedge FOF in 2008 • shifts in risk/return profiles … i.e. mortgage funds in 2005, credit funds in 2008/9

33. Current investment themes • Asset allocation sets the scene • Bonds are boring but have a role to play • Equities continue to be a mainstay in growth portfolios • Emerging market exposure to access growth opportunities • Alternatives have a role … but shouldn’t be exaggerated • Fund selection themes • Include a diverse range of high quality funds, with clear points of difference • Active management in equities more important than ever • Know what your managers are exposed to

34. Looking ahead – long term return forecasts Based on May 2009 survey