RESEARCH PORTFOLIO STRATEGY & RESEARCH GROUP …€¦ · RESEARCH PORTFOLIO STRATEGY & RESEARCH...

R E S E A R C H PORTFOLIO STRATEGY & RESEARCH GROUP SEPTEMBER 30, 2014

This report is for distribution only to Australian resident clients of Morgan Stanley. Morgan Stanley Wealth Management does and seeks to do business with companies covered in Morgan Stanley Wealth Management Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Wealth Management Research. Investors should consider Morgan Stanley Wealth Management Research as only a single factor in making their investment decision.

Listed Investment Companies AUSTRALIA EWA TUREK Morgan Stanley Wealth Management Research MALCOLM WOOD Morgan Stanley Wealth Management Research SZE CHUAH Morgan Stanley Wealth Management Research

In Vogue: Listed Investments • Meeting Investor Demand for Listed Investments: Year to date,

six new funds have listed on the ASX, taking the total number of exchange listed investment companies (LICs) to 60 and the market capitalisation of the space to ~$25.7 billion. The LIC market is set to continue to grow with the IPO pipeline showing no signs of slowing.

• Absolute Return Equity Strategies: With continued growth in the LIC space we add two new funds to our coverage, both of which offer investors an alternative to traditional long-only Australian equity exposure.

• Watermark Funds Management: We initiate coverage on the Watermark Market Neutral Fund (WMK), a market neutral domestic equities fund, with a Neutral weighting; and the Australian Leaders Fund (ALF), a variable beta fund, with an Underweight weighting. These weightings are driven by the MSWM LIC Quantitative Model.

• MSWM Recommended List: We add CDM and MLT to our recommended domestic equity exposure and, following strong performance, remove PMC from our core international equity exposure.

Figure 1: MSWM LIC Quantitative Model

Source: MSWM Research

R E S E A R C H LISTED INVESTMENT COMPANIES SEPTEMBER 30, 2014

Please refer to important information, disclosures and qualifications at the end of this material.

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In Vogue: Listed Investments Listing on the ASX is gaining popularity as fund managers respond to growing investor demand for easily accessible investments. Year to date, six new funds have listed on the ASX, taking the total number of exchange listed investment companies (LICs) to 60 and the market capitalisation of the space to ~$25.7 billion (Figure 2). The LIC market is set to grow with the IPO pipeline showing no signs of slowing.

This is good news for investors. For a start, half the funds to list this year have been in an asset class other than the crowded Australian shares category, (Figure 3) and domestic focused listings all have mandates outside the S&P/ASX 20. As a result, these listings offer investors new opportunities to add diversification to their portfolios (e.g. Blue Sky Alternatives Access Fund (BAF) invests in a portfolio of alternative assets and PM Capital Asian Opportunities Fund (PAF) provides investors access to Asian equity markets).

With the continued growth in the LIC space we add two new funds to our coverage, both of which offer investors an alternative to traditional long-only Australian equity exposure. Figure 2: The Market Capitalisation of LICs has Grown to $25.7 billion

Source: ASX, Morningstar. Data as at 31 August 2014.

Figure 3: The Asset Class Spread of LICs is Gradually Becoming more Diversified

Source: ASX, Morningstar. Data as at 31 August 2014.

Absolute Return Equity Strategies A market neutral strategy aims to generate investment returns that are independent of the market environment - this type of fund looks to deliver consistent returns over diverse market cycles. In order to cancel out the impact of market fluctuations the portfolio will have an allocation to both long and short equity positions (resulting in a “market neutral” portfolio). In aggregate, the dollar value of long positions tends to be roughly equal to the dollar value of short positions. When markets fall, the shorts will provide a hedge against losses in the long positions in the Portfolio. A long/short strategy is another type of absolute return strategy. The key difference between a market neutral and long/short strategy is that in a long/short strategy the manager will tend to take active views on the market resulting in an unequal allocation between long and short positions. Watermark Market Neutral Fund Limited (WMK) The Watermark Market Neutral Fund was listed on the ASX in July 2013. WMK is an active, market neutral domestic equities Fund with an average net exposure of no more than 10%. The investment mandate is to profit from the mispricing of domestic equities while limiting downside risk through the use of long/short hedging strategies. Although the Company mainly invests in ASX listed Securities, the Fund also has the ability to invest offshore.

The Fund scores well on value in our quantitative model. However, due to underperformance relative to its benchmark over the past 12 months its performance score was low. We initiate coverage with a Neutral weighting. Australian Leaders Fund (ALF) ALF is a variable beta fund that can adjust its net exposure to reflect the Manager’s outlook on markets. When the market is cheap the Fund may be fully invested with a net exposure of 100%, while when market conditions are viewed as unfavourable net exposure can be negative. The Fund has an investment objective of 5% outperformance above the ASX All Ordinaries index over the medium term. While long term returns have been solid, the Fund has struggled to add alpha over recent timeframes. The combination of underperformance and high NTA volatility has contributed to a weak performance score. Moreover, the Fund is also trading at a significant premium to NTA. We initiate coverage with an Underweight weighting.

MSWM Recommended List

International Equity Exposure: In our June 2014 piece, The Case for International LICs, we put forward three arguments in favour of international LICs. Since then our recommended international equity LICs have significantly outperformed their



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domestic equity counterparts (Figure 4). Following this strong run we make the following recommendations:

• Platinum Capital (PMC) – Having made strong gains PMC is now trading at a large ~7.3% premium to NTA. As a result we take profits and remove the Fund from our recommended list.

• Templeton Global Growth (TGG) – Despite slipping into the “Quality” quadrant of our model, we continue to recommend TGG for international LIC exposure. Given its unhedged nature we expect the Fund to benefit from a weakening AUD.

Our core domestic and international equity exposures are summarised in Figure 5 below.

Figure 4: Total Return of MSWM Recommended List

Source: MSWM Research, IRESS. Data as at 25 September 2014.

Australian Equity Exposure: Collectively, domestic LICs continue to trade at a premium to NTA. Given the general lack of value in the domestic market, we prefer those Funds which rank attractively within our quantitative model and trade at a relatively smaller premium to NTA. We add the following funds to our recommended list:

• Cadence Capital (CDM) – CDM invests in both long and short positions (with a long bias) and aims to deliver solid risk adjusted returns through different cycles. Despite trading at a small premium to NTA the Fund screens attractively in our model.

• Milton Corporation (MLT) –MLT is a long only active fund that invests predominantly in Australian equities. Given a high allocation to banks, the fund is well positioned for a rebound in this sector.

Figure 5: MSWM Recommended List

Source: MSWM Research, IRESS. Prices as at 25 September 2014; performance ratios use data to 31August 2014.

LIC Last Price Qtr Rolling Recommended Period*Core International EquityPMC $1.85 10.5% 14.5%HHV $1.13 16.1% 13.2%TGG $1.37 8.1% 6.4%Core Australian EquityCIN $27.67 5.2% 5.6%ARG $7.62 3.0% 3.7%* Refers to the period from 5 June - 25 Sept 2014

Core Australian Equity

Price1 Year NTA

OutperformanceBeta-Implied

Discount5 Year Information

RatioARG 7.62$ 0.4% -2.0% 0.01CIN 27.67$ 5.1% 9.0% 0.65

CDM 1.42$ 0.3% -0.7% 0.97MLT 4.37$ -0.4% -0.9% 0.32

Core International Equity

Price1 Year NTA

Outperformance Beta-Implied

Discount5 Year Information

RatioTGG 1.37$ -3.3% 7.1% -0.09HHV 1.13$ 3.4% 14.6% -0.17

MSWM Recommended List



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Sector Charts Figure 6: Management Fees

Source: Morgan Stanley Wealth Management Research, IRESS, ASX. Discounts to NTA as at 31 August 2014. Figure 7: Long Term Risk-Adjusted Management Performance and Discounts Table to 31 August 2014

Source: Morgan Stanley Wealth Management Research, IRESS, ASX. Discounts to NTA as at 31 August 2014. Note: if less than 10 year data available, lesser amount used.

Figure 8: Unrealised Tax Liabilities

Source: MSWM Research, IRESS, ASX. Discounts to NTA as of 30 Aug 2014. Figure 9: Long Term Risk-Adjusted Management Performance and Discounts Chart

Source: MSWM Research, IRESS, ASX. Discounts to NTA as at 30 Aug 2014. Figure 10: Present Value of Fees

Source: MSWM Research, IRESS, ASX. Discounts to NTA as at 31 August 2014. Value of Fees assumes fees as an annuity into perpetuity.

Listed Investment Company ASX Code Management Fees (% p.a.) Performance Fee Discount to NTA

AMP Capital China Growth Fund AGF 1.65% 20% of returns above CITIC 300 17.8%

Hunter Hall Value HHV 1.50% 15% of returns above bm 11.4%

Carlton Investments CIN 0.12% none 8.6%

Cadence Capital CDM 1.00% 20% > Min(ASX All Ord, 0% ) 6.5%

Westoz Investments WIC 1.00% 20% of returns > 10% in 12 mo period 6.1%

Templeton Global Growth TGG 1.00% none 2.7%

Magellan Flagship Fund MFF 1.25% 10% of returns above bm if >10Yr 1.7%

BKI Investment Company BKI 0.18% none -0.3%

Diversified United Investment DUI 0.17% none -1.3%

Asian Masters Fund AUF 1.00% none -1.9%

Australian Foundation Investment AFI 0.19% none -2.3%

Milton Corporation MLT 0.16% none -2.7%

Watermark Market Neutral Fund WMK 1.00% 20% of returns above RBA Cash Rate -4.0%

Argo Investments ARG 0.18% none -4.2%

Australian United Investment AUI 0.13% none -4.3%

WAM Research WAX 1.00% 20% of returns > ASX All Ordinaries -5.6%

Platinum Capital PMC 1.50% 10% above (benchmark + 5% ) -9.2%

WAM Capital WAM 1.00% 20% of returns > above All Ords -10.1%

Mirrabooka Investments MIR 0.79% none -18.1%

Australian Leaders Fund ALF 1.00% 20% of returns above ASX All Ords -22.7%

Djerriwarrh Investments DJW 0.41% none -23.9%

WAM Active WAA 1.00% 20% of returns > highest Pf value -34.1%

ASX Code Excess NTA Performance (10 Yr p.a.)

Excess Franking (10 Yr p.a.)

Tracking Error (10 Yr p.a.)

Risk Adjusted Sum Discount to NTA

AGF -1.1% 0.0% 8.5% -0.13 17.8%

HHV 0.9% 1.3% 13.7% 0.15 11.4%

CIN 2.7% 0.5% 8.0% 0.39 8.6%

CDM 11.0% 1.5% 11.4% 1.10 6.5%

WIC 4.7% 1.3% 7.5% 0.80 6.1%

TGG 0.0% 1.0% 6.5% 0.15 2.7%

MFF 6.9% 0.0% 9.0% 0.77 1.7%

BKI 0.3% 2.8% 5.2% 0.61 -0.3%

DUI 1.7% 0.5% 4.6% 0.47 -1.3%

AUF -3.6% 0.3% 5.0% -0.67 -1.9%

AFI 0.7% 0.4% 2.4% 0.46 -2.3%

MLT 0.1% 0.5% 4.3% 0.15 -2.7%

WMK -2.1% 1.0% 6.6% -0.16 -4.0%

ARG 0.0% 0.4% 6.6% 0.07 -4.2%

AUI 0.7% 0.2% 3.7% 0.25 -4.3%

WAX -2.9% 1.2% 8.2% -0.21 -5.6%

PMC 2.5% 2.6% 10.2% 0.50 -9.2%

WAM 0.9% 1.3% 10.6% 0.20 -10.1%

ALF 3.1% 2.1% 17.9% 0.29 -22.7%

MIR 5.4% 2.2% 7.3% 1.03 -18.1%

DJW -1.0% 1.2% 3.4% 0.05 -23.9%

WAA -3.9% 1.7% 9.4% -0.23 -34.1%



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Model Rankings Performance Ranking - Domestic

Source: Morgan Stanley Wealth Management Research, Data as of 31 August 2014. If less than 5 years of data available – 3 year or 1 year metrics used.

Performance Ranking – International

Source: Morgan Stanley Wealth Management Research. Data as of 31 August 2014. If less than 5 years of data available – 3 year or 1 year metrics used.

Value Ranking - Domestic

Source: Morgan Stanley Wealth Management Research, Data as of 31 August 2014. If less than 5 years of data available – 3 year or 1 year metrics used. 1. Discount vs. historical refers to the discount the LIC is trading at relative to its historical discount. 2. Current discount refers to the current price relative to the beta implied value of the LIC.

LIC 1 Year Excess Return Rank 3 Year Franking Excess Rank 5 Year Information Ratio Rank 5 Year Vol Rank 5 Year Skew RankAFI 0.3% 5 0.4% 13 0.64 4 11.7% 10 0.6 3

ARG 0.4% 3 0.6% 11 0.01 11 14.1% 14 1.5 1ALF -11.2% 16 2.7% 1 0.50 6 14.8% 15 0.0 9AUI -0.8% 8 0.2% 15 0.10 9 13.7% 12 -0.2 12BKI -4.3% 13 0.8% 9 0.20 8 11.4% 8 0.5 6CIN 5.1% 1 0.6% 12 0.65 3 9.8% 5 0.6 5DJW -1.3% 9 1.3% 7 -0.65 16 11.4% 9 -0.1 11DUI -0.2% 6 0.3% 14 0.06 10 13.2% 11 -0.4 14MIR 3.1% 2 1.7% 4 1.36 1 10.5% 6 -0.3 13MLT -0.4% 7 0.7% 10 0.32 7 11.0% 7 0.3 7WAM -4.6% 14 1.2% 8 -0.23 13 7.9% 4 -0.7 15WIC -2.6% 11 1.3% 6 0.63 5 17.5% 16 0.6 4CDM 0.3% 4 2.1% 3 0.97 2 13.7% 12 0.7 2WAA -9.3% 15 2.4% 2 -0.41 15 6.5% 2 0.1 8WMK -2.1% 10 0.0% 16 -0.32 14 6.6% 3 -1.6 16WAX -3.9% 12 1.6% 5 -0.20 12 6.0% 1 -0.1 10

SkewRecent Management Performance NTA Franking Benefit Long-term Risk-Adjusted

Performance - NTA Absolute Volatility - NTA

LIC 1 Year Excess Return Rank 3 Year Franking Excess Rank 5 Year Information Ratio Rank 5 Year Vol Rank 5 Year Skew RankAGF -7.1% 5 0.0% 5 -0.13 4 23.8% 6 -0.9 6AUF -11.5% 6 0.0% 5 -0.73 6 10.3% 2 0.3 1HHV 3.4% 1 0.4% 3 -0.17 5 10.1% 1 -0.1 3MFF -3.0% 2 0.0% 4 0.65 1 12.6% 5 -0.1 4PMC -3.2% 3 1.3% 1 -0.06 2 11.1% 3 -0.2 5TGG -3.3% 4 1.0% 2 -0.09 3 11.8% 4 0.3 2

SkewRecent Management Performance NTA Franking Benefit Long-term Risk-Adjusted

Performance - NTA Absolute Volatility - NTA

LIC Discount vs Historical1 Rank Current Discount2 Rank Volatility Rank Technical Rank Residual Discount RankAFI -2.3% 1 -2.1% 10 6.4% 6 36.7 10 -20.9% 10

ARG -2.5% 2 -2.0% 9 6.9% 7 34.5 8 -19.3% 7ALF -34.1% 15 -15.1% 14 11.9% 13 33.7 7 -32.0% 13AUI -9.4% 8 2.6% 5 5.1% 4 34.7 9 -23.3% 12BKI -9.3% 7 3.0% 4 4.6% 2 26.1 2 -11.2% 4CIN -3.4% 3 9.0% 2 8.7% 10 46.6 15 -10.7% 3DJW -14.3% 9 -23.1% 15 8.3% 9 38.9 12 -32.0% 14DUI -7.2% 6 4.3% 3 6.1% 5 37.6 11 -20.2% 8MIR -20.4% 13 -11.5% 13 8.2% 8 32.0 6 -36.7% 15MLT -4.6% 5 -0.9% 7 5.0% 3 29.2 3 -20.8% 9WAM -16.2% 10 -8.0% 12 12.0% 14 48.6 16 -22.9% 11WIC -18.4% 11 10.3% 1 9.9% 11 31.0 5 -5.7% 2CDM -21.7% 14 -0.7% 6 14.8% 16 24.6 1 -5.7% 1WAA -39.2% 16 -27.6% 16 13.0% 15 44.9 13 -44.7% 16WMK -4.0% 4 -1.1% 8 2.6% 1 30.7 4 -18.2% 6WAX -20.2% 12 -6.7% 11 10.9% 12 45.2 14 -15.5% 5

Relative Discount Month End Current Discount to Beta Implied Discount Volatility RSI Worst Case Scenario Discount



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Value Ranking – International

Source: Morgan Stanley Wealth Management, Data as of 31 August 2014. If less than 5 years of data available – 3 year or 1 year metrics used. 1. Discount vs. historical refers to the discount the LIC is trading at relative to its historical discount. 2. Current discount refers to the current price relative to the beta implied value of the LIC.

LIC Discount vs Historical1 Rank Current Discount2 Rank Volatility Rank Technical Rank Residual Discount RankAGF -2.0% 4 13.8% 2 8.5% 3 50.6 3 1.2% 1AUF 1.6% 2 -2.1% 5 4.0% 1 53.7 5 -21.3% 5HHV -5.8% 5 14.6% 1 5.9% 2 48.1 1 -3.4% 2MFF -9.3% 6 2.9% 4 10.4% 4 52.8 4 -18.8% 4PMC 3.8% 1 -7.3% 6 20.4% 6 50.3 2 -32.0% 6TGG -0.9% 3 7.1% 3 12.6% 5 63.3 6 -8.9% 3

Relative Discount Month End Current Discount to Beta Implied Discount Volatility RSI Worst Case Scenario Discount



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Market Snapshot

MSWM Quant Rating: Overweight

Performance: Robust AFI continues to deliver strong risk-adjusted returns over the long term, with a recent improvement in short term numbers resulting in a better performance score. Value: Good AFI is trading at a premium to NTA, however, it scores attractively on this measure relative to domestic peers.

Holdings at a Glance

Australian Foundation Investment Company (AFI) Key Information

Universe: Australian Equities MER: 0.19% Style: Value, Long-Only, Options Included Performance Fees: None Manager: Internal Benchmark: S&P/ASX 200 Acc. Index Listed Date: 1 January 1936 Balance Date: 30 June

AFI is the largest Listed Investment Company in Australia and boasts a history dating back to 1936. Like many other traditional LICs, it uses a value-based investment strategy that focuses on buying and holding high-quality high-yielding stocks that appear to be oversold. The company was initially incorporated as The Were Investment Trust. AFI utilises option strategies within its trading portfolio. Performance Analysis: as at 31 August 2014

Share Price and NTA

Source: Factset, Bloomberg, Company Reports, MSWM Research

Current Price, as of 25/09/14 6.01$

August End: Pre-Tax NTA 5.99$

August End: Post-Tax NTA 5.02$

Beta-Implied NTA Estimate 5.88$

Current Premium to NTA Estimate 2.2%

Trailing 12 Month Div idend Yield 3.6%

Last 12 Month Capital Gain 4.2%

Beta (3 Year Rolling) to ASX200 0.88

Market Capitalisation (A$bn) 6.33

1 Month Rolling Volume Traded (mn) 8.7

1 Month Rolling Value Traded (A$mn) 53.4

AUSTRALIAN FOUNDATION INVESTMENT COMPA AFI% of Portfolio

1 Commonwealth Bank 10.5%2 Westpac Banking Corp. 10.1%3 BHP Billiton 8.9%4 National Australia Bank 5.3%5 Wesfarmers 5.1%6 ANZ Banking 4.6%7 Telstra Corp. 4.5%8 Woolworths 3.7%9 Rio Tinto 3.6%10 Oil Search 2.4%

Source: IRESS, Company Reports

Top Holdings as at 31 August 2014 (excl cash)

Security Total Return 3 Month 1 Year 3 Yr p.a. 5 Yr p.a. 10 Yr p.aNet Performance 4.0% 11.6% 17.9% 9.1% 10.9%

ASX 200 Net Accum. 3.5% 14.4% 14.5% 9.3% 9.4%Excess Return 0.5% -2.8% 3.4% -0.2% 1.5%

Gross Performance 5.0% 13.3% 20.0% 11.1% 12.8%ASX 200 Gross Accum. 3.8% 15.9% 16.0% 10.8% 10.9%

Excess Return 1.2% -2.6% 3.9% 0.3% 1.9%

NTA Performance 3 Month 1 Year 3 Yr p.a. 5 Yr p.a. 10 Yr p.aPerformance 3.2% 14.7% 15.6% 10.3% 10.1%

ASX 200 Net Accum. 3.5% 14.4% 14.5% 9.3% 9.4%Excess Return -0.3% 0.3% 1.2% 1.0% 0.7%

Franking Analysis 3 Month 1 Year 3 Yr p.a. 5 Yr p.a. 10 Yr p.aFranking Return 1.0% 1.5% 1.7% 1.8% 1.8%

Benchmark Franking 0.3% 1.3% 1.4% 1.4% 1.4%Franking Excess 0.7% 0.2% 0.4% 0.5% 0.4%



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Share Price Relative to Benchmark

Source: Factset, Bloomberg, Company Reports

Risk Analysis & Risk Adjusted Return


Risk - Security 1 Year 3 Year 5 Year 10 YearVolatility 6.5% 12.6% 11.6% 14.2%

Benchmark Volatility 8.5% 11.7% 12.0% 13.7%Beta to ASX200 0.27 0.88 0.64 0.69

Beta to Resources 0.19 0.44 0.36 0.31Beta to Industrials 0.27 0.83 0.62 0.67

Risk - Underlying 1 Year 3 Year 5 Year 10 YearNTA Volatility 8.1% 11.4% 11.7% 12.8%

Tracking Error 1.2% 1.4% 1.5% 2.4%Skewness of Excess -0.37 -0.09 0.64 0.83Downside Volatility 4.0% 6.8% 7.0% 9.0%

Risk Adjusted Return 1 Year 3 Year 5 Year 10 YearInformation Ratio 0.22 0.85 0.64 0.30

Sharpe Ratio 1.28 0.99 0.51 0.46Sortino Ratio 2.59 1.66 0.86 0.65



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Market Snapshot

MSWM Quant Rating: Neutral

Performance: Poor NTA performance has continued to disappoint. Volatility remains high and excess returns are now negative over all timeframes. Value: Neutral AGF continues to trade at a large discount to NTA. It should be noted, however, this discount has been relatively stable over the life of the Fund. Holdings at a Glance

AMP Capital China Growth Fund (AGF) Key Information Universe: Chinese Equities MER: 1.65% Style: Growth, Unhedged Performance Fees: 20% above index Manager: AMP Capital Investors Benchmark: S&P/CITIC300 Index (AUD) Listed Date: 22 December 2006 Balance Date: 31 December AGF is the only investment vehicle listed in Australia that provides direct exposure to Chinese A-Shares listed on the Shanghai or Shenzhen bourses. This is because foreign investment in Chinese A-shares is limited to institutional investors with a QFII licence. The fund is well diversified across multiple sectors and aims to provide long-term capital growth. The investments are unhedged. Performance Analysis: As at 31 August 2014

Share Price and NTA






Current Discount to NTA Estimate 13.8%







AMP CAPITAL CHINA GROWTH FUND AGF% of Portfolio

1 Ping An Insurance 5.1%2 China Vanke 4.6%3 CITIC Securities 4.1%4 China Merchants Bank 3.7%5 Shanghai Pudong Development Bank 3.6%6 China Minsheng Banking Corp 3.5%7 Industrial Bank Co 3.4%8 Kweichow Moutai 3.3%9 Haitong Securities 2.6%10 Gree Electric Appliances 2.5%



Security Total Return 3 Month 1 Year 3 Yr p.a. 5 Yr p.a. 10 Yr p.aNet Performance 8.8% 1.0% 5.7% -3.9%

CITIC 300 Net (AUD) 12.3% -0.2% 2.6% -1.0%Excess Return -3.5% 1.2% 3.1% -2.9%

Gross Performance 8.8% 1.0% 5.7% -3.9%CITIC 300 Gross (AUD) 12.3% -0.2% 2.6% -1.0%

Excess Return -3.5% 1.2% 3.1% -2.9%

NTA Performance 3 Month 1 Year 3 Yr p.a. 5 Yr p.a. 10 Yr p.aPerformance 8.4% -7.4% 1.3% -2.1%

CITIC 300 Net (AUD) 12.3% -0.2% 2.6% -1.0%Excess Return -3.9% -7.1% -1.3% -1.1%

Franking Analysis 3 Month 1 Year 3 Yr p.a. 5 Yr p.a. 10 Yr p.aFranking Benefit 0.0% 0.0% 0.0% 0.0%

Bm Franking Return 0.0% 0.0% 0.0% 0.0%Franking Excess 0.0% 0.0% 0.0% 0.0%



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Source: Factset, Bloomberg



Risk - Security 1 Year 3 Year 5 Year 10 YearVolatility 25.5% 25.3% 24.0%

Benchmark Volatility 17.0% 22.1% 20.7%Beta to MSCI AxJ AUD 2.18 1.23 0.91Beta to ASX Resources 0.90 0.69 0.63

Beta to CITIC 300 1.25 0.96 0.89Risk - Underlying 1 Year 3 Year 5 Year 10 Year

NTA Volatility 17.9% 22.5% 23.8%Tracking Error 7.1% 5.7% 8.5%

Skewness of Excess -0.98 -0.92 -0.91Downside Volatility 13.0% 12.4% 15.3%

Risk Adjusted Return 1 Year 3 Year 5 Year 10 YearInformation Ratio -1.01 -0.23 -0.13

Sharpe Ratio -0.65 -0.13 -0.27Sortino Ratio -0.89 -0.24 -0.42



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Market Snapshot

MSWM Quant Rating: Underweight

Performance: Poor Long term performance has been solid, but the Fund has struggled to add alpha over the short and medium term. Despite an attractive dividend yield high NTA volatility make this a higher risk security. Value: Poor Value is poor with the LIC trading at a large premium to NTA, particularly relative to its history.

Portfolio Structure

Australian Leaders Fund (ALF) Key Information Universe: Australian Equities

MER: 1.00%

Style: Long/Short Equity -Variable Beta Performance Fees: 20% > All Ordinaries Manager: Watermark Funds Management Benchmark: ASX All Ordinaries Listed Date: 10 February 2004 Balance Date: 30 June ALF is a variable beta fund that can adjust its net exposure to reflect the Manager’s outlook on markets. When the market is cheap the Fund may be fully invested with a net exposure of 100%, while when market conditions are viewed as unfavourable net exposure can be negative. The Fund has an investment objective of 5% outperformance above the ASX All Ordinaries index over the medium term. Performance: As at 31 August 2014

Share Price and NTA








Last 12 Month Capital Gain -7.5%





AUSTRALIAN LEADERS FUND ALF31-Jul-14 31-Aug-14

Long Exposure 138 144Short Exposure -123 -119Net Exposure 15 25Cash 85 75Capital 100 100


Gross Portfolio Structure (%)


ASX All Ordinaries 3.8% 14.4% 13.6% 9.1% 9.2%Excess Return -2.0% -1.3% 12.8% 10.6% 7.7%

Gross Performance 1.8% 16.5% 30.9% 23.9% 20.6%ASX All Ordinaries 4.1% 16.0% 15.1% 10.5% 10.6%

Excess Return -2.3% 0.6% 15.8% 13.3% 10.0%

NTA Performance 3 Month 1 Year 3 Yr p.a. 5 Yr p.a. 10 Yr p.aPerformance -6.6% 3.2% 12.3% 11.7% 12.3%

ASX All Ordinaries 3.8% 14.4% 13.6% 9.1% 9.2%Excess Return -10.4% -11.2% -1.3% 2.6% 3.1%

Franking Analysis 3 Month 1 Year 3 Yr p.a. 5 Yr p.a. 10 Yr p.aFranking Benefit 0.0% 3.0% 3.6% 3.5% 3.2%

Bm Franking Return 0.3% 1.3% 1.3% 1.3% 1.3%Franking Excess -0.3% 1.9% 2.7% 2.5% 2.1%



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Risk Analysis & Risk-Adjusted Return


1 Year 3 Year 5 Year 10 YearVolatility 8.1% 12.3% 13.8% 17.4%




Tracking Error 14.7% 14.3% 17.4% 17.9%Skewness of Excess -0.37 0.23 0.01 -0.24Downside Volatility 5.5% 9.5% 9.1% 11.2%

Risk Adjusted Return 1 Year 3 Year 5 Year 10 YearInformation Ratio -0.76 -0.09 0.15 0.18

Sharpe Ratio -0.10 0.66 0.50 0.53Sortino Ratio -0.19 0.84 0.81 0.44



13

Market Snapshot


Performance: Good Returns remain steady with a positive skew over all timeframes. Value: Good ARG is trading at a minor premium to NTA but value is reasonable relative to peers and the LICs history. Fees are also very attractive for this Fund.


Argo Investments (ARG) Key Information Universe: Australian Equities MER: 0.18% Style: Core, Long Only, Active Performance Fees: None Manager: Internal Benchmark: S&P/ASX AllOrd Acc. Index Listed Date: 1 January 1947 Balance Date: 30 June ARG is Australia’s second largest investment company. It focuses on investing in high quality companies in order to achieve a balance between price appreciation and dividend growth. The company takes a very long-term view on stocks and decisions are strongly based upon fundamental research. Quality of management is a particularly important criterion when deciding to purchase a particular stock. Performance Analysis: As at 31 August 2014

Share Price and NTA













ARGO INVESTMENTS ARG% of Portfolio

1 Westpac Banking Corp. 7.0%2 ANZ Banking 6.1%3 BHP Billiton 5.7%4 Wesfarmers 4.6%5 Telstra Corp. 4.6%6 Commonwealth Bank 4.5%7 National Australia Bank 3.8%8 Milton Corporation 3.3%9 Rio Tinto 3.0%10 Aus. United Investment Co 3.0%




ASX All Net Accum. 3.8% 14.4% 13.6% 9.1% 9.2%Excess Return 5.6% 4.8% 5.7% -0.4% 0.5%

Gross Performance 10.2% 21.1% 21.5% 10.7% 11.5%ASX All Gross Accum. 4.1% 16.0% 15.1% 10.5% 10.6%

Excess Return 6.1% 5.1% 6.4% 0.1% 0.9%


ASX All Net Accum. 3.8% 14.4% 13.6% 9.1% 9.2%Excess Return -0.2% 0.4% 1.8% 0.0% 0.0%


Bm Franking Return 0.3% 1.3% 1.3% 1.3% 1.3%Franking Excess 0.5% 0.3% 0.6% 0.5% 0.4%



14









Tracking Error 19.0% 10.8% 8.4% 6.6%Skewness of Excess 0.70 1.06 1.47 1.59Downside Volatility 21.9% 11.9% 9.6% 10.1%





15

Market Snapshot


Performance: Poor Performance has been poor - AUF continues to underperform the MSCI Asia ex Japan AUD Index. Value: Neutral AUF is trading at a minor premium to NTA; however it rates favourably on value relative to international peers.


Asian Masters Fund (AUF) Key Information Universe: Asian Equities MER: 1.00% Style: Funds of Funds, Long Only, Unhedged Performance Fees: 15% over 10% p.a. Manager: Orient Pacific Partners Benchmark: MSCI Asia ex Japan AUD Listed Date: 4 December 2007 Balance Date: 30 June The Asian Masters Fund is a listed investment company that invests in other managed funds specialising in Asian Equities. It is in essence a fund of funds. The investment manager is responsible for choosing the right fund manager and determining allocation. The fund does not actively manage currency risk or enter into any hedging contracts.

Performance: As at 31 August 2014

Share Price and NTA













ASIAN MASTERS FUND AUF% of Portfolio

1 Arisaig Asian Consumer Fund 20.3%2 APS China A Share Fund 14.7%3 Prusik Asia Fund 11.0%4 JPM China Pioneer A Shares Fund 10.9%5 Prusik Asian Smaller Co. Fund 10.1%6 Aberdeen Asian Opportunities Fund 8.0%7 CK Absolute Return Fund 6.8%8 Steadview Capital Fund 5.0%9 JPM Taiwan Fund 3.9%10 JPM Korea Fund 3.6%


Top Holdings as at 31 December 2013 (excl cash)

Security Total Return 3 Month 1 Year 3 Yr p.a. 5 Yr p.a. 10 Yr p.aNet Performance 4.9% 2.8% 8.1% 3.1%

MSCI Asia ex Japan AUD 6.4% 15.4% 12.9% 7.7%Excess Return -1.5% -12.6% -4.8% -4.6%

Gross Performance 4.9% 2.8% 8.1% 3.4%MSCI Asia ex Japan AUD 6.5% 15.7% 13.2% 8.0%

Excess Return -1.6% -12.9% -5.1% -4.6%

NTA Performance 3 Month 1 Year 3 Yr p.a. 5 Yr p.a. 10 Yr p.aPerformance 4.0% 3.9% 8.5% 4.1%

MSCI Asia ex Japan AUD 6.4% 15.4% 12.9% 7.7%Excess Return -2.4% -11.5% -4.4% -3.6%





16






Benchmark Volatility 8.3% 10.6% 11.0%Beta to MSCI AxJ AUD 0.52 0.74 0.61Beta to ASX Resources 0.25 0.26 0.19

Beta to CITIC 300 0.35 0.28 0.17Risk - Underlying 1 Year 3 Year 5 Year 10 Year

NTA Volatility 7.6% 10.3% 10.3%Tracking Error 3.8% 5.4% 5.0%

Skewness of Excess -0.02 0.33 0.28Downside Volatility 3.0% 4.8% 6.4%


Sharpe Ratio -0.05 0.41 -0.02Sortino Ratio -0.12 0.87 -0.03



17

Market Snapshot


Performance: Poor Performance has been reasonable on a NTA basis, however, a low dividend yield and high NTA volatility relative to peers depresses the LICs value score. Value: Good The LIC continues to trade at a discount to NTA. However, we note that high unrealised tax liabilities and lower than normal liquidity justify this discount to some degree. Holdings at a Glance

Australian United Investment Company (AUI) Key Information

Universe: Australian Equities MER: 0.13% Style: Value, Long-Only, Active Performance Fees: None Manager: Internal Benchmark: S&P/ASX 300 Acc. Index Listed Date: 1 January 1974 Balance Date: 30 June

Australian United Investment Company is a large and diversified LIC that invests in the ASX 300 Accumulation Index. It has a strong bottom-up fundamental philosophy and looks at a stock’s individual income and growth prospects without reference to any top-down sector views. AUI does not have a separate investment management team, as all decisions are made by the board of directors. Performance: As at 31 August 2014

Share Price and NTA:













AUSTRALIAN UNITED INVESTMENT COMPANY AUI% of Portfolio

1 ANZ Banking 8.5%2 Westpac Banking Corp. 7.6%3 Commonwealth Bank 7.5%4 BHP Billiton 6.9%5 National Australia Bank 6.8%6 Wesfarmers 5.8%7 Rio Tinto 5.5%8 Woodside Petroleum 4.9%9 Diversified United Invest. 4.4%10 Woolworths 4.0%




ASX 300 Net Accum. 3.6% 14.1% 14.0% 9.1% 9.2%Excess Return 10.1% 10.7% 6.7% 1.3% 1.7%


Excess Return 9.8% 10.0% 7.0% 1.8% 1.9%


ASX 300 Net Accum. 3.6% 14.1% 14.0% 9.1% 9.2%Excess Return -2.0% -0.8% 0.5% 0.3% 0.7%


Bm Franking Return 0.3% 1.5% 1.4% 1.4% 1.4%Franking Excess -0.3% -0.6% 0.2% 0.4% 0.2%



18









Tracking Error 2.6% 2.4% 3.0% 3.7%Skewness of Excess -2.27 -0.91 -0.17 -0.09Downside Volatility 3.7% 7.5% 7.4% 9.5%

Risk Adjusted Return 1 Year 3 Year 5 Year 10 YearInformation Ratio -0.29 0.21 0.10 0.20




19

Market Snapshot


Performance: Poor BKI’s performance over the past 12 months has been weak. Despite more robust performance over longer timeframes, high NTA volatility drags down the LIC’s performance score. Value: Good BKI is trading at a discount to NTA however, relative to the LIC’s history, this discount has narrowed substantially. Holdings at a Glance

BKI Investment Company (BKI) Key Information Universe: Australian Equities MER: 0.17% Style: Income, Long Only, Active Performance Fees: None Manager: Internal Benchmark: S&P/ASX 300 Acc. Index Listed Date: 12 December 2003 Balance Date: 30 June BKI Investment Company is a LIC that makes long-term investments in Australian equities. The company focuses on companies that are well-managed and provide strong dividends and dividend growth. BKI was initially formed in 2003 to manage the investment portfolio of Brickworks (BKW) that was established in the 1980s. Performance: As at 31 August 2014

Share Price and NTA













BKI INVESTMENT COMPANY BKI% of Portfolio

1 Commonwealth Bank 9.3%2 National Australia Bank 9.2%3 Westpac Banking Corp. 8.3%4 BHP Billiton 6.3%5 Telstra Corp. 5.3%6 New Hope Corporation 5.2%7 ANZ Banking 4.9%8 Wesfarmers 4.5%9 Woolworths 3.8%10 TPG Telecom 3.0%


Top Holdings as at 31 August 2014 (incl cash)




Excess Return -0.3% 0.4% 7.5% 4.8% 4.8%


ASX 300 Net Accum. 3.6% 14.1% 14.0% 9.1% 9.2%Excess Return -0.9% -4.3% -0.1% 0.7% 0.3%

Franking Analysis 3 Month 1 Year 3 Yr p.a. 5 Yr p.a. 6 Yr p.a.Franking Benefit 0.9% 1.8% 2.0% 2.1% 3.8%




20




Source: Factset, Bloomberg, IRESS, Company Reports






Risk Adjusted Return 1 Year 3 Year 5 Year 10 YearInformation Ratio -1.98 -0.02 0.20 0.06




21

Market Snapshot


Performance: Good CDM’s long term returns have been impressive – it has strong risk adjusted returns and a positive return skew. Value: Good Following recent weakness in the domestic market CDM is trading at a minor premium to NTA. A low technical RSI and worst case scenario discount also benefit the Fund. Holdings at a Glance

Cadence Capital (CDM) Key Information Universe: Australian Equities MER: 1.00% Style: Long Short, Small Cap Bias Performance Fees: 20% out performance

against ASX All Ordinaries Index Manager: Internal Benchmark: S&P/ASX All Ord. Acc. Index Listed Date: 5 December 2006 Balance Date: 30 June CDM invests in both long and short positions, with a long bias, in equities listed on the Australian Stock Exchange. Typically the fund is active in under researched small and mid-cap equities in the market. The fund targets 20 to 40 research-driven core investments and anything from 0 to 40 trading opportunities in the portfolio at any one point in time. The maximum leverage the Fund would employ in the portfolio is $0.40 of debt for every $1 of equity, or 40% debt. Performance: As at 31 August 2014

Share Price and NTA













CADENCE CAPITAL CDM% of Portfolio

1 Macquarie Group 8.1%2 Henderson Group PLC 5.8%3 Gilead Science Inc 5.0%4 Genworth 4.7%5 Arrium Ltd 4.3%6 Melbourne IT 4.0%7 ANZ Banking 4.0%8 iiNet Ltd 3.1%9 Retail Food Group 3.1%10 Suncorp-Metway 3.0%




ASX All Ordinaries 3.8% 14.4% 13.6% 9.1%Excess Return 0.7% 0.9% 4.4% 18.8%

Gross Performance 4.5% 17.1% 21.6% 31.1%ASX All Ordinaries 4.1% 16.0% 15.1% 10.5%

Excess Return 0.4% 1.1% 6.5% 20.6%


ASX All Ordinaries 3.8% 14.4% 13.6% 9.1%Excess Return -0.3% 0.3% -1.0% 11.0%


Bm Franking Return 0.3% 1.3% 1.3% 1.3%Franking Excess -0.3% 0.2% 2.1% 1.5%



22






Benchmark Volatility 8.3% 11.7% 11.9%Beta to ASX200 0.63 0.65 0.01

Beta to Resources 0.38 0.37 -0.02Beta to Industrials 0.66 0.59 0.43

Risk - Underlying 1 Year 3 Year 5 Year 10 YearNTA Volatility 6.5% 7.8% 13.7%

Tracking Error 8.5% 8.1% 11.4%Skewness of Excess 0.68 0.45 0.71Downside Volatility 2.5% 4.3% 8.4%

Risk Adjusted Return 1 Year 3 Year 5 Year 10 YearInformation Ratio 0.03 -0.12 0.97

Sharpe Ratio 1.62 1.07 1.16Sortino Ratio 4.21 1.94 1.88



23

Market Snapshot


Performance: Excellent Performance has been solid over all timeframes and this LIC exhibits a positive skew of excess returns. Value: Good While historically CIN has traded at a discount to NTA, it ranks strongly relative to expensive peers.


Carlton Investments (CIN) Key Information

Universe: Australian Equities MER: 0.12% Style: Income, Long-Only, Active Performance Fees: None Manager: Internal Benchmark: S&P/ASX 300 Acc. Index

Balance Date: 30 June Listed Date: January 1971 Carlton Investments focuses on investing in blue chip shares which have a high, sustainable and fully franked dividend yield. It has a strong exposure to Amalgamated Holdings (AHD) and therefore it has a tilt towards the entertainment, hospitality and leisure industries. CIN was initially incorporated in 1928 to acquire Carlton Hotel Ltd and Ebenezer Investment Company. Performance: As at 31 August 2014

Share Price and NTA













CARLTON INVESTMENTS CIN% of Portfolio

1 Amalgamated Holdings 36.0%2 National Australia Bank 8.2%3 Westpac Banking Corp. 7.5%4 Commonwealth Bank 5.6%5 ANZ Banking 4.1%6 Wesfarmers 3.3%7 BHP Billiton 3.2%8 Telstra Corp. 2.7%9 AGL Energy 2.6%10 Perpetual 2.4%


Top Holdings as at 30 June 2014 (incl cash)




Excess Return 4.5% 4.4% 14.5% 7.8% 4.0%







24


Source: Factset, Bloomberg, Company Reports







Tracking Error 4.9% 6.1% 6.8% 8.0%Skewness of Excess -0.17 0.90 0.61 0.51Downside Volatility 1.6% 5.4% 5.6% 8.7%





25

Market Snapshot


Performance: Poor DJW has a strong ability to generate franking benefits and a good income stream derived from selling call options, however NTA performance has been disappointing. Value: Poor DJW continues to trade at a considerable premium to NTA, which is no longer warranted given alternatives in the buy-write space. Holdings at a Glance

Djerriwarrh Investments (DJW) Key Information Universe: Australian Equities MER: 0.41% Style: Core, Long-Only, Active plus options Performance Fees: None Manager: Internal Listed Date: 28 June 1995

Benchmark: S&P/ASX50 Acc. Balance Date: 30 June

Djerriwarrh Investments invests on large cap stocks for which there is an active options market. The reason for this is that the company also attempts to enhance income within the portfolio by writing exchange traded call options on 20%- 50% of stocks in the portfolio (buy-write strategies). Djerriwarrh invests in the stocks that provide a fully franked dividend and reasonable capital upside. The company may gear its balance sheet by issuing convertible notes and through access to lines of credit. Performance: As at 31 August 2014

Share Price and NTA













DJERRIWARRH INVESTMENTS DJW% of Portfolio

1 BHP Billiton 11.2%2 Westpac Banking Corp. 9.0%3 Commonwealth Bank 7.5%4 National Australia Bank 7.2%5 ANZ Banking 6.8%6 Oil Search 4.9%7 Telstra Corp. 4.7%8 Wesfarmers 4.0%9 Rio Tinto 3.5%10 Woodside Petroleum 3.5%




ASX 50 Net Accum. 3.2% 14.2% 15.9% 10.1% 10.0%Excess Return -0.7% -2.2% 1.1% -1.1% 0.1%


Excess Return 0.4% -1.4% 2.4% 0.1% 1.3%


ASX 50 Net Accum. 3.2% 14.2% 15.9% 10.1% 10.0%Excess Return -1.2% -1.3% -2.4% -2.0% -1.0%





26


Source: Factset, Bloomberg, IRESS, Company Reports







Tracking Error 1.5% 2.8% 3.1% 3.4%Skewness of Excess 0.38 1.03 -0.13 0.09Downside Volatility 2.4% 7.2% 7.0% 9.7%

Risk Adjusted Return 1 Year 3 Year 5 Year 10 YearInformation Ratio -0.84 -0.85 -0.65 -0.29




27

Market Snapshot


Performance: Neutral Performance has been reasonable, with solid returns over the long term. However, a low dividend yield and high NTA volatility reduce the overall performance score. Value: Good DUI offers good value trading at a discount of 4.3% to NTA.


Diversified United Investment (DUI) Key Information Universe: Australian Equities MER: 0.17% Style: Value, Long-Only, Active Performance Fees: None Manager: Internal Benchmark: S&P/ASX 300 Acc. Index Listed Date: 19 December Balance Date: 30 June Diversified United Investment Ltd invests mainly in Australian equities but also seeks to invest a small amount in fixed income securities, property trusts and short-term deposits. The LIC focuses on medium to long term capital growth through large blue-chip stocks.


Share Price and NTA













DIVERSIFIED UNITED INVESTMENT COMPANY DUI% of Portfolio

1 Commonwealth Bank 9.1%2 ANZ Banking 8.8%3 Westpac Banking Corp. 8.8%4 BHP Billiton 8.4%5 Woodside Petroleum 6.0%6 National Australia Bank 5.9%7 CSL 5.4%8 Rio Tinto 4.7%9 Transurban Group 3.6%10 Woolworths 3.0%






Excess Return 7.1% 11.3% 9.6% 1.9% 3.7%




Bm Franking Return 0.3% 1.5% 1.4% 1.4% 1.4%Franking Excess -0.3% -0.6% 0.3% 0.6% 0.5%



28


Source: Factset, Bloomberg,







Tracking Error 2.4% 2.2% 3.0% 4.6%Skewness of Excess -1.83 -0.65 -0.42 1.02Downside Volatility 2.7% 7.2% 7.4% 10.1%





29

Market Snapshot


Performance: Good HHV has delivered strong returns over the past 12 months. Moreover NTA volatility is low relative to peers. Value: Good HHV continues to trade at an attractive discount to NTA – it should be noted however, this discount has been quite persistent through time.


Hunter Hall Global Value (HHV) Key Information Universe: International Equities MER: 1.50% Style: Value, Long-Only, Actively Hedged Performance Fees: 15% above benchmark Manager: Hunter Hall Investment Management Listed Date: 19 March 2004

Benchmark: MSCI World AUD Balance Date: 30 June

Hunter Hall Global Value is a LIC aiming for capital growth through investments in global equities that deemed to be undervalued compared to their intrinsic value. The company has international currency exposures that are managed actively by the investment manager. The investment style is focused towards value with a medium to long-term investment horizon. Hunter Hall has a reputation within Australia for ethical investing. Performance: As at 31 August 2014

Share Price and NTA













HUNTER HALL GLOBAL VALUE HHV% of Portfolio

1 Sirtex Medical 20.1%2 M2 Telecommunications 5.3%3 Danieli 3.7%4 Take Two Interactive 2.5%5 JP Morgan 2.4%6 Bank of New York Mellon 2.3%7 Prudential Financial 2.3%8 Apple 1.9%9 LeoPalace21 2.2%10 Alchemia 2.1%



Security Total Return 3 Month 1 Year 3 Yr p.a. 5 Yr p.a. 10 Yr p.aNet Performance 10.2% 26.2% 18.0% 10.9% 4.9%MSCI World AUD 1.9% 15.3% 20.8% 10.0% 4.6%

Excess Return 8.4% 10.8% -2.8% 0.9% 0.3%Gross Performance 10.2% 26.6% 18.5% 11.9% 6.2%MSCI World AUD 2.0% 15.9% 21.5% 10.6% 5.2%

Excess Return 8.3% 10.7% -3.0% 1.2% 1.0%


MSCI World AUD 1.9% 15.3% 20.8% 10.0% 4.6%Excess Return 4.3% 3.4% -8.4% -1.7% 0.9%





30






Benchmark Volatility 8.2% 9.0% 9.7% 11.3%Beta to MSCI AC World -0.14 0.59 0.63 0.70

Beta to MSCI World -0.15 0.47 0.56 0.62Beta to ASX 200 0.67 0.58 0.55 0.78


Tracking Error 8.0% 9.5% 9.7% 13.7%Skewness of Excess -0.09 -0.05 -0.09 -0.05Downside Volatility 2.7% 8.2% 6.6% 13.3%

Risk Adjusted Return 1 Year 3 Year 5 Year 10 YearInformation Ratio 0.43 -0.88 -0.17 0.06




31

`Market Snapshot


Performance: Good MIR has delivered solid risk adjusted returns over all timeframes. Value: Poor Value is poor with the LIC trading at large beta implied premium of 11.6% to NTA.


Mirrabooka Investments (MIR) Key Information Universe: Australian and NZ Equities MER: 0.79% Style: Core, Long-Only, Small/Mid Cap Performance Fees: None Manager: Internal Benchmark: Combined S&P Mid-50 & Small Listed Date: 28 June 2001 Ordinaries Acc. Index (50%/50%)

Balance Date: 30 June Mirrabooka Investments invests in small to mid-cap companies listed on the Australian and New Zealand stock exchanges. Its objective is to provide long-term growth with a particular focus on companies with a low price to earnings ratio and a high dividend yield.


Share Price and NTA













MIRRABOOKA INVESTMENTS MIR% of Portfolio

1 Equity Trustees 3.7%2 Tassal Group 3.3%3 Qube Holdings 3.3%4 Oil Search 3.3%5 ALS Ltd 3.1%6 Ansell 3.0%7 IRESS Market Tech. 2.7%8 Alumina 2.6%9 InvoCare 2.5%10 Perpetual 2.5%




ASX Mid 50 / Small Cap 5.2% 13.5% 5.2% 4.4% 6.2%Excess Return 8.6% 9.9% 20.7% 12.6% 10.5%

Gross Performance 16.6% 27.1% 29.3% 19.9% 20.1%ASX Mid 50 / Small Cap 5.4% 14.5% 6.6% 5.5% 7.2%

Excess Return 11.2% 12.6% 22.8% 14.4% 12.9%


ASX Mid 50 / Small Cap 5.2% 13.5% 5.2% 4.4% 6.2%Excess Return 1.1% 8.1% 13.8% 9.9% 5.4%





32









Tracking Error 4.4% 6.5% 6.4% 7.3%Skewness of Excess 0.22 -0.15 -0.23 -0.01Downside Volatility 3.3% 5.7% 5.8% 11.2%





33

Market Snapshot


Performance: Good Short term performance has improved, while over the long term MFF has delivered impressive excess returns. We note, however, that the concentrated nature of the portfolio tends to lead to higher tracking error. Value: Neutral Despite trading at a small discount to NTA, this discount is small relative to history thereby reducing the funds overall value score.


Magellan Flagship Fund (MFF) Key Information Universe: International Equities MER: 1.25% Style: Core, Long-Only, Actively Hedged Performance Fees: 10% above bench-

mark if > Australian Gov. 10Yr Yield Manager: Magellan Asset Management Listed Date: 19 Dec 2006

Benchmark: MSCI World ex Aus. (AUD) Balance Date: 30 June

Magellan Flagship Fund (MFF) is an international equity LIC which invests in large multinational corporations that are expected to be market leaders within attractive industries. The LIC has a medium to long investment horizon and looks at stocks that are believed to be trading below intrinsic value. Currency exposures are activity hedged by the LIC according to its FX views. Performance: As at 31 August 2014

Share Price and NTA









Beta (3 Year Rolling) to ASX200 -0.37




MAGELLAN FLAGSHIP FUND MFF% of Portfolio

1 Wells Fargo 11.7%2 Visa 10.5%3 Home Depot Inc 9.6%4 Lowe's 9.3%5 Bank of America 8.7%6 MasterCard 8.0%7 HCA Holdings 7.8%8 Lloyds Banking Group 5.8%9 US Bancorp 5.1%10 Wal-Mart 5.0%



Security Total Return 3 Month 1 Year 3 Yr p.a. 5 Yr p.a. 10 Yr p.aNet Performance -0.3% 6.4% 36.1% 20.7%

MSCI World ex Aus AUD 1.8% 15.3% 21.0% 10.1%Excess Return -2.2% -8.9% 15.0% 10.6%

Gross Performance -0.3% 6.4% 36.1% 20.7%MSCI World ex Aus AUD 1.9% 16.0% 21.8% 10.7%

Excess Return -2.3% -9.5% 14.4% 10.1%


MSCI World ex Aus AUD 1.8% 15.3% 21.0% 10.1%Excess Return 2.3% -3.0% 6.1% 6.9%





34






Benchmark Volatility 8.5% 9.3% 9.9%Beta to MSCI AC World 0.57 0.71 0.92

Beta to MSCI World 0.54 0.75 0.90Beta to ASX 200 0.13 -0.37 0.09

Risk - Underlying 1 Year 3 Year 5 YearNTA Volatility 17.0% 15.4% 13.6%

Tracking Error 14.8% 11.4% 10.6%Skewness of Excess -0.12 -0.14 -0.13Downside Volatility 9.2% 7.4% 6.1%

Risk Adjusted Return 1 Year 3 Year 5 YearInformation Ratio -0.20 0.53 0.65




35

Market Snapshot


Performance: Good MLT has delivered solid NTA returns over longer timeframes. Strong risk adjusted returns and an attractive dividend are additional positives for this LIC. Value: Good MLT is trading at a premium to NTA, however it screens positively on value relative to peers.


Milton Corporation (MLT)

Key Information Universe: Australian Equities MER: 0.16% Style: Core, Long-Only, Active Performance Fees: None Manager: Internal Listed Date: 30 January 1962

Benchmark: S&P/ASX 300 Acc. Index Balance Date: 30 June

Milton Corporation is a long-standing LIC that invests predominantly in Australian equities. It may also invest in fixed interest securities and real property. MLT’s objective is to provide a fully franked dividend and diversified growth to investors. The LIC is heavily weighted towards the financial sector.


Share Price and NTA













MILTON CORPORATION MLT% of Portfolio

1 Westpac Banking Corp. 12.9%2 Commonwealth Bank 8.7%3 National Australia Bank 5.4%4 Washington H Soul Pattison 4.7%5 BHP Billiton 4.4%6 Wesfarmers 4.4%7 Woolworths 3.6%8 ANZ Banking 3.5%9 Bank of Queensland 3.2%10 ALS Ltd 2.9%






Excess Return 3.1% 6.2% 7.3% 2.0% 0.7%







36









Tracking Error 2.7% 3.3% 3.2% 4.3%Skewness of Excess -0.46 0.43 0.26 -0.51Downside Volatility 3.5% 6.5% 6.7% 10.3%





37

Market Snapshot


Performance: Good Despite weak 1 year excess returns the LIC has delivered solid returns over 10 years and NTA volatility remains reasonable. Value: Poor PMC scores poorly on value trading at a large premium to NTA. However, this premium is quite low relative to history.


Platinum Capital (PMC) Key Information Universe: International Equities MER: 1.50% Style: Value, Long-Short, Actively Hedged Performance Fees: 15% above index + 5% Manager: Platinum Asset Management Listed Date: 29 June 1994

Benchmark: MSCI AC World Net Free AUD Balance Date: 30 June

Platinum Capital is the Listed Investment Company managed by Platinum Asset Management – a well-known global equity asset manager domiciled in Australia. PMC employs a value strategy to find and exploit perceived undervaluation within global equity markets. The LIC manages currency exposures actively and may also enter into short positions on equities or indices. Performance: As at 31 August 2014

Share Price and NTA













PLATINUM CAPITAL Jun-14 Mar-14 PMCChange

Asia 29.0% 28.0% 1.0%North America 26.0% 24.0% 2.0%Europe 23.0% 26.0% -3.0%Japan 12.0% 14.0% -2.0%Russia 3.0% 2.0% 1.0%Africa 3.0% 3.0% 0.0%Australia 1.0% 1.0% 0.0%South America 1.0% 1.0% 0.0%Cash 2.0% 1.0% 1.0%Shorts 10.0% 10.0% 0.0%


Geographical exposure % of Portfolio


MSCI AC World AUD 2.4% 15.2% 19.3% 9.5% 4.9%Excess Return 3.1% 9.2% 7.0% -1.7% -0.6%

Gross Performance 6.7% 26.8% 27.9% 10.0% 7.0%MSCI AC World AUD 2.5% 15.8% 20.0% 10.1% 5.4%

Excess Return 4.2% 11.0% 8.0% -0.1% 1.5%


MSCI AC World AUD 2.4% 15.2% 19.3% 9.5% 4.9%Excess Return 2.6% -3.2% 0.2% -0.4% 2.5%





38

Share Price and Relative Benchmark





Benchmark Volatility 7.7% 8.7% 9.3% 11.1%Beta to MSCI AC World -0.20 0.88 0.85 0.57

Beta to MSCI World -0.19 0.82 0.79 0.52Beta to ASX 200 -0.06 0.26 0.42 0.45


Tracking Error 6.1% 6.1% 7.4% 10.2%Skewness of Excess -0.34 0.19 -0.18 0.34Downside Volatility 8.1% 5.3% 5.3% 6.0%

Risk Adjusted Return 1 Year 3 Year 5 Year 10 YearInformation Ratio -0.53 0.04 -0.06 0.25




39

Market Snapshot


Performance: Good TGG’s short term performance has deteriorated recently. Despite this it’s skew on returns is positive over long timeframes and it offers an attractive dividend yield relative to international peers. Value: Neutral While value remains attractive with the LIC trading at a ~7.0% discount to NTA, this discount has narrowed over time.


Templeton Global Growth Fund (TGG) Key Information Universe: International Equities MER: 1.00% Style: Value, Long-Only, Unhedged Performance Fees: None Manager: Franklin Templeton Investment Listed Date: 28 May 1987

Benchmark: MSCI AC World Free Net AUD Balance Date: 30 June

Templeton Global Growth Fund is a listed investment company that invests in international equities. The investment manager is a wholly owned subsidiary of Franklin Templeton Investments which has over 60 years of investment experience with operations in over 30 countries around the world. The manager does not normally enter into hedging contracts. Performance: As at 31 August 2014

Share Price and NTA













TEMPLETON GLOBAL GROWTH TGGCountry

1 Samsung Electronics South Korea2 Microsoft Corporation US3 Glaxosmithkline UK4 Amgen Inc US5 Sanofi SA France6 Roche Holdings Switzerland7 Comcast Corporation US8 Pfizer Inc US9 Suntory Beverage & Food Ltd Japan10 NA -


Top Holdings as at 30 June 2014 (incl cash)


MSCI AC World Free AUD 2.4% 15.2% 19.3% 9.5% 4.9%Excess Return 1.1% 3.9% 9.2% 4.0% 0.6%

Gross Performance 3.5% 20.2% 29.8% 14.5% 6.5%MSCI AC World Free AUD 2.5% 15.8% 20.0% 10.1% 5.4%

Excess Return 1.0% 4.4% 9.9% 4.4% 1.1%


MSCI AC World Free AUD 2.4% 15.2% 19.3% 9.5% 4.9%Excess Return -1.5% -3.3% 1.7% -0.4% 0.0%





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Benchmark Volatility 7.7% 8.7% 9.3% 11.1%Beta to MSCI AC World 1.17 1.20 0.95 1.00

Beta to MSCI World 1.05 1.10 0.88 0.94Beta to ASX 200 0.29 0.45 0.43 0.65



Risk Adjusted Return 1 Year 3 Year 5 Year 10 YearInformation Ratio -1.05 0.40 -0.09 0.00




41

Market Snapshot


Performance: Poor The LIC’s NTA performance has been disappointing relative to the benchmark and domestic peers. Value: Poor WAM is trading at a significant premium to NTA and its value score remains low.


WAM Capital Ltd (WAM) Key Information

Universe: Australian Equities MER: 1.00% Style: Industrials, Mid/Small, Variable Beta Performance Fees: 20% above ASX All

Ordinaries Index Manager: Wilson Asset Management Pty Ltd Listed Date: 12 August 1999

Benchmark: ASX 300 Industrials Balance Date: 30 June

WAM Capital provides investors exposure to a listed investment company with an actively managed diversified portfolio of undervalued growth companies. These are primarily found in the small to mid-cap industrial sector. WAM Also provides exposure to relative value arbitrage and market mispricing opportunities. The investment objectives are to deliver investors a rising stream of fully franked dividends, to provide capital growth and preserve capital. Performance: As at 31 August 2014

Share Price and NTA













WAM CAPITAL LTD WAM% of Portfolio

1 CBA Perpetual PERLS IV 3.0%2 Slater and Gordon Holdings 2.3%3 Century Australia Investments 2.2%4 Veda Group Ltd 2.2%5 Hunter Hall Global Value Limited 1.8%6 Macquarie Atlas Roads 1.7%7 Westpac Preferred SPSII 1.6%8 Greencross Ltd 1.6%9 CSG Limited 1.5%10 Automotive Holdings 1.5%

Source: IRESS, Company ReportsNote: 30.7% allocation to Cash and Fixed Interest



ASX 300 Industrials 3.8% 16.3% 21.4% 12.6% 9.4%Excess Return 3.5% 3.4% -1.9% 5.4% 1.6%

Gross Performance 7.3% 22.9% 22.8% 21.0% 14.0%ASX 300 Industrials 4.1% 18.1% 23.6% 14.6% 11.1%

Excess Return 3.2% 4.8% -0.8% 6.4% 2.9%


ASX 300 Industrials 3.8% 16.3% 21.4% 12.6% 9.4%Excess Return 0.6% -4.6% -8.5% -2.1% 0.9%





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Tracking Error 5.6% 9.4% 9.2% 10.6%Skewness of Excess 0.48 -1.22 -0.71 0.29Downside Volatility 1.5% 3.6% 3.9% 7.8%

Risk Adjusted Return 1 Year 3 Year 5 Year 10 YearInformation Ratio -0.83 -0.91 -0.23 0.08




43

Market Snapshot


Performance: Neutral NTA performance has been disappointing; however the LIC’s performance score is supported by a strong dividend yield. Value: Poor WAM continues to trade at a large premium to NTA both in absolute terms and relative to its historical discount. This divergence between NTA and price has likely been supported by investors’ search for yield. Holdings at a Glance

WAM Active Ltd (WAA) Key Information

Universe: Australian Equities MER: 1.00% Style: Absolute Return Performance Fees: 20% above portfolio high Manager: Wilson Asset Management Group Listed Date: 16 November 2008

Benchmark: ASX All Ordinaries Balance Date: 30 June

WAM Active Limited offers investors exposure to an active trading style with the aim of achieving a sound return with a low correlation to traditional markets. The investment objectives are to deliver investors a growing stream of fully franked dividends and to preserve capital in both the short term and long term. Performance: As at 31 August 2014

Share Price and NTA













WAM ACTIVE LTD WAA% of Portfolio

1 Century Australia Investments 4.5%2 Hunter Hall Global Value Limited 3.9%3 CBA Perpetual PERLS IV 3.8%4 Macquarie Atlas Roads 3.6%5 Hills Industries 2.8%6 ING Private Equity Access Ltd 2.7%7 Genworth Mortgage Insurance Australia Ltd 2.7%8 Myer Holdings 2.7%9 Westoz Investment Co 2.4%10 Harvey Norman 2.2%




ASX All Ordinaries 3.8% 14.4% 13.6% 9.1%Excess Return 11.8% 12.8% 8.3% 8.0%

Gross Performance 15.6% 31.3% 26.1% 20.4%ASX All Ordinaries 4.1% 16.0% 15.1% 10.5%

Excess Return 11.5% 15.3% 11.0% 9.9%


ASX All Ordinaries 3.8% 14.4% 13.6% 9.1%Excess Return -1.9% -9.3% -6.7% -3.9%


Bm Franking Return 0.3% 1.3% 1.3% 1.3%Franking Excess -0.3% 2.2% 2.4% 1.7%



44







Beta to Resources -0.23 0.14 0.19Beta to Industrials 0.13 0.43 0.61

Risk - Underlying 1 Year 3 Year 5 Year 10 YearNTA Volatility 7.7% 6.5% 6.5%






45

Market Snapshot


Performance: Neutral NTA performance has been weak, however similarly to WAA the LICs score is supported by an attractive dividend yield.

Value: Neutral Value remains poor with the LIC trading at a premium to NAV. Discount volatility is also high relative to peers. Holdings at a Glance

WAM Research Ltd (WAX) Key Information

Universe: Australian Equities MER: 1.00% Style: Value, Small Cap Long-Only Performance Fees: 20% above ASX

All Ordinaries. Manager: Wilson Asset Management Group Benchmark: S&P/ASX 300 Industrials Listed Date: 19 August 2003 Balance Date: 30 June WAM Research Limited is a listed investment company that invests in undervalued growth companies, primarily in the small to medium sized industrial companies listed on the ASX. The investment objectives are to provide a growing stream of fully franked dividends and to achieve a high real rate of return, comprising both income and capital growth, within risk parameters acceptable to the Directors. Performance: As at 31 August 2014

Share Price and NTA













WAM RESEARCH LTD WAX% of Portfolio

1 Slater and Gordon Holdings 4.4%2 Veda Group Ltd 4.3%3 Greencross Ltd 3.1%4 CBA Perpetual PERLS IV 3.0%5 CSG Limited 3.0%6 Automotive Holdings 3.0%7 Technology One 2.8%8 Mantra Group Ltd 2.7%9 Infomedia Ltd 2.5%10 Ardent Leisure Group 2.2%




ASX 300 Industrials 3.8% 16.3% 21.4% 12.6% 9.4%Excess Return 0.2% -3.7% 5.6% 6.4% -0.2%

Gross Performance 4.0% 15.5% 30.8% 22.8% 12.1%ASX 300 Industrials 4.1% 18.1% 23.6% 14.6% 11.1%

Excess Return -0.1% -2.6% 7.2% 8.2% 0.9%


ASX 300 Industrials 3.8% 16.3% 21.4% 12.6% 9.4%Excess Return 0.5% -3.9% -7.0% -1.5% -2.9%





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Tracking Error 6.3% 7.6% 7.5% 8.2%Skewness of Excess -0.11 -0.15 -0.06 0.03Downside Volatility 0.9% 2.2% 3.3% 8.3%

Risk Adjusted Return 1 Year 3 Year 5 Year 10 YearInformation Ratio -0.63 -0.92 -0.20 -0.35




47

Market Snapshot


Performance: Neutral NTA performance has deteriorated over the past year, but long term returns remain robust. The dividend yield for this LIC is very attractive; however, high NTA volatility and a focus on the resource sector make this LIC a higher risk option. Value: Good The LIC continues to offer reasonable value trading at a 10.3% discount to NTA.


Westoz Investment Company (WIC) Key Information

Universe: Australian Equities MER: 1.00% Style: Small Cap, Variable Beta Performance Fees: 20% of performance>10%

over a 12 month period Manager: Westoz Funds Management Pty Ltd Benchmark: ASX Small Ordinaries Listed Date: 16 September 2009 Balance Date: 30 June The investment mandate is to identify undervalued companies listed on the ASX to produce a return. WIC's investment strategy is based on the medium to long-term investment of funds and is consequently not suitable where large non-investment cash flows occur on a regular basis. Although, the Company mainly invests in ASX Listed Securities, from time to time, a portion of the portfolio may be held in short-term cash deposits, and derivatives may be used where considered appropriate. Performance: As at 31 August 2014

Share Price and NTA













WESTOZ INVESTMENT COMPANY LTD WIC% of Portfolio

1 Automotive Holdings 10%2 Finbar Group 10%3 Aquila Resources 9%4 Aurora Oil & Gas Limited 9%5 Mount Gibson Iron 6%6 Cedar Woods Properties Limited 6%7 Medusa Mining 6%8 Sundance Resources 5%9 Sandfire Resources 4%10 Atlas Iron 4%

Source: IRESS, Company Reports**Cash allocation of 32%

**Top Holdings as at 31 August 2014 (incl cash)

Security Total Return 3 Month 1 Year 3 Yr p.a. 5 Yr p.a. 10 Yr p.aNet Performance 1.2% 20.3% 16.6%

ASX Small Ordinaries 6.2% 7.5% -0.2%Excess Return -5.0% 12.8% 16.8%

Gross Performance 2.7% 24.1% 19.9%ASX Small Ordinaries 6.3% 8.4% 1.5%

Excess Return -3.6% 15.7% 18.3%

NTA Performance 3 Month 1 Year 3 Yr p.a. 5 Yr p.a. 10 Yr p.aPerformance 0.9% 4.9% 4.5%

ASX Small Ordinaries 6.2% 7.5% -0.2%Excess Return -5.3% -2.6% 4.7%

Franking Analysis 3 Month 1 Year 3 Yr p.a. 5 Yr p.a. 10 Yr p.aFranking Benefit 1.5% 3.1% 2.8%

Bm Franking Return 0.1% 0.8% 1.7%Franking Excess 1.5% 2.5% 1.3%



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Risk - Security 1 Year 3 Year 5 Year 10 YearVolatility 17.5% 18.9%

Benchmark Volatility 10.7% 16.7%Beta to ASX200 0.96 1.07

Beta to Resources 0.66 0.62Beta to Industrials 0.95 0.95

Risk - Underlying 1 Year 3 Year 5 Year 10 YearNTA Volatility 9.5% 17.5%

Tracking Error 8.8% 7.5%Skewness of Excess 1.05 0.63Downside Volatility 3.4% 9.1%

Risk Adjusted Return 1 Year 3 Year 5 Year 10 YearInformation Ratio -0.29 0.63

Sharpe Ratio 0.06 0.01Sortino Ratio 0.18 0.03



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Market Snapshot


Performance: Poor The Fund’s performance has been disappointing underperforming the RBA cash rate over a 1 year timeframe. Value: Good Value relative to peers looks attractive with the LIC trading at a marginal premium to NTA.

Portfolio Structure

Watermark Market Neutral Fund (WMK) Key Information Universe: Australian Equities

MER: 1.00%

Style: Market Neutral Performance Fees: 20% above RBA Cash Rate Manager: Watermark Funds Management Benchmark: RBA Cash Rate Listed Date: 18 July 2013 Balance Date: 30 June Watermark Market Neutral Fund (WMK) is an active, market neutral domestic equities Fund with an average net exposure of no more than 10%. The investment mandate is to profit from the mispricing of domestic equities while limiting downside risk through the use of long/short hedging strategies. Although the Company mainly invests in ASX Listed Securities, the Fund has the ability to invest offshore (maximum allocation of 10%). Performance: As at 31 August 2014

Share Price and NTA









Beta (3 Year Rolling) to ASX200




WATERMARK MARKET NEUTRAL FUND LTD WMK31-Jul-14 31-Aug-14

Long Exposure 127 129Short Exposure -125 -124Net Exposure 2 5Cash 98 95Capital 100 100


Gross Portfolio Structure (%)

Security Total Return 3 Month 1 Year 3 Yr p.a. 5 Yr p.a. 10 Yr p.aNet Performance 0.0% 6.0%RBA Cash Rate 0.6% 2.5%Excess Return -0.6% 3.5%

Gross Performance 0.0% 7.1%RBA Cash Rate 0.6% 2.5%Excess Return -0.6% 4.6%

NTA Performance 3 Month 1 Year 3 Yr p.a. 5 Yr p.a. 10 Yr p.aPerformance -5.7% 0.4%

RBA Cash Rate 0.6% 2.5%Excess Return -6.3% -2.1%

Franking Analysis 3 Month 1 Year 3 Yr p.a. 5 Yr p.a. 10 Yr p.aFranking Benefit 0.0% 1.0%

Bm Franking Return 0.0% 0.0%Franking Excess 0.0% 1.0%



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Risk - Security 1 Year 3 Year 5 Year 10 YearVolatility 10.1%

Benchmark Volatility 0.0%Beta to ASX200 0.56

Beta to Resources 0.37Beta to Industrials 0.56

Risk - Underlying 1 Year 3 Year 5 Year 10 YearNTA Volatility 6.6%

Tracking Error 6.6%Skewness of Excess -1.59Downside Volatility 6.1%

Risk Adjusted Return 1 Year 3 Year 5 Year 10 YearInformation Ratio -0.32

Sharpe Ratio -0.58Sortino Ratio -0.63



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Appendix A – The Jargon Explained Performance Measures

Net Performance: This represents simply the return for holding stock in the LIC. It is calculated as the total return of listed stock in the LIC, including both capital return and dividend yield. All dividends are reinvested on the ex-date but do not include franking. Gross Performance: This represents the return including franking for holding stock in the LIC. The calculation is similar to net performance but dividend yield now includes franking credits. Excess Return: This represents how well the stock has performed against the benchmark – the excess portfolio return. This is calculated arithmetically (i.e. one minus another) for simplicity purposes. NTA Performance: This looks at the performance of the underlying portfolio rather than the listed security, and is one of the most important measures of manager ability. For NTA performance, dividends do not include franking. Capital returns are calculated using reported NTAs – which are sometimes rounded to 2 decimal places. Dividend yields are calculated geometrically using reported dividends using the NTA at the end of each month. Due to rounding and timing of the dividend calculation, NTA returns could differ, albeit slightly, from returns calculated daily (as opposed to monthly) by the actual company. Franking Return: This represents the additional return on yield for an investor who has access to franking benefits. It is calculated as the geometric (compound) difference between net and gross returns outlined above.

Risk Measures

Volatility: This represents how risky the investment is and how widely the stock can move over time. It is calculated as the standard deviation of monthly net returns. A volatility of 10% over 1 year roughly means one would expect the security to return within -10% and 10% over a year two-thirds of the time. Beta: This represents the relationship in returns between a factor and the LIC stock. A Beta to ASX 200 of 1.5 means that a 1% move in the ASX 200 would imply a movement of 1.5% in the stock. The accuracy of beta varies by the factor used. NTA Volatility: This represents the volatility in the underlying portfolio, rather than the volatility of the stock itself. It is calculated as a standard deviation using the monthly returns described in NTA Performance. Tracking Error: This represents how closely a manager tracks the index. It is calculated as the standard deviation of all excess (arithmetic) returns each month of the portfolio over its index. As the excess returns over the benchmark becomes large, the standard deviation of these excess returns are large and implies the manager makes larger bets. Skewness of Excess: Skewness looks at how lopsided the distribution of returns are for a particular portfolio, and it is calculated as the skew of excess returns over the benchmark for an underlying portfolio. A strong negative skew means that when losses are made, they tend to be significantly large whereas positive returns are often smaller in size. This measures the ability for the management to avoid blow-ups in their portfolios as well as be able to capture strong upside when the opportunity arises. Downside Volatility: Traditional volatility looks at the size of large movements in the stock – downside volatility only looks at the large losses in the stock. This is calculated as the standard deviation of all the negative monthly returns over a particular period. Periods that have positive returns are excluded in the calculation.

Security Total Return 3 Month 1 Year 3 Yr p.a. 5 Yr p.a.Net Performance 3.5% 19.1% 28.6% 13.5%

MSCI AC World Free AUD 2.4% 15.2% 19.3% 9.5%Excess Return 1.1% 3.9% 9.2% 4.0%

Gross Performance 3.5% 20.2% 29.8% 14.5%MSCI AC World Free AUD 2.5% 15.8% 20.0% 10.1%

Excess Return 1.0% 4.4% 9.9% 4.4%

NTA Performance 3 Month 1 Year 3 Yr p.a. 5 Yr p.a.Performance 0.9% 11.9% 21.1% 9.1%

MSCI AC World Free AUD 2.4% 15.2% 19.3% 9.5%Excess Return -1.5% -3.3% 1.7% -0.4%

Franking Analysis 3 Month 1 Year 3 Yr p.a. 5 Yr p.a.Franking Benefit 0.0% 0.9% 1.0% 0.9%


Risk - Security 1 Year 3 Year 5 YearVolatility 5.9% 11.0% 10.9%


Beta to Resources 0.08 0.39 0.34Beta to Industrials 0.20 0.69 0.64

Risk - Underlying 1 Year 3 Year 5 YearNTA Volatility 21.7% 15.6% 14.1%




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Risk-Adjusted Ratios

Information Ratio: This measure represents the amount of excess return that a manager achieves per unit of tracking error. This is based on the idea that managers who exceed the benchmark by making very large bets should not be rated as highly as those who consistently beat the benchmark by making smaller bets. The information ratio is calculated as the excess return over a particular period divided by the tracking error (calculated monthly) over that same period. Sharpe Ratio: This represents how much the underlying portfolio has performed over the risk-free cash rate (we use 5.5% per annum) per unit of standard deviation of the portfolio. The importance of the Sharpe Ratio is that is a stronger measure of absolute rather than relative performance. Many LICs have negative sharpe ratios in recent times due to the poor performance of equities in general compared to cash since the GFC. Sortino Ratio: The Sortino Ratio is similar to the Sharpe Ratio but uses downside volatility (see above) rather than absolute volatility (standard deviation). We also use the risk free rate of 5.5% per annum for the Sortino ratio. Other Data MER: This stands for Management Expense Ratio and is often calculated as the expense incurred managing the investments as a percentage of average net tangible assets over a year. Trailing 12 Month Dividend Yield: This represents the return an investor would receive on their investments as dividend income. This is calculated geometrically using month end stock price as the denominator.

Risk Adjusted Return 1 Year 3 Year 5 YearInformation Ratio -0.07 1.04 0.06




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Appendix B - MSWM Australia Quantitative Model Factors and Ratings The Performance Rating includes the following factors: Recent Management Performance: Recent management performance captures success of current process and investment ideas. We use the excess return of the underlying portfolio over 1 year against the prescribed benchmark. Franking Benefit: This factor is calculated as the amount of extra franking return of a particular LIC over its benchmark over the last three years. Long-Term Risk-Adjusted Performance: This is calculated as the long-term excess performance of the LIC portfolio over the last 5 years divided by the volatility of excess returns (information ratio). Riskiness of the Security: Investors prefer to avoid LICs that trade with higher volatility. This factor is the total volatility of monthly security returns over 5 years. Downside Risk Management: This is calculated as the skewness of excess returns of the underlying portfolio against its prescribed benchmark.

The Value Rating is composed of the following factors: Last Reported versus Historical Discount: We calculate the average historical discount of the LIC (since inception or January 2000, whichever is later) and compare this to the last reported NTA discount. Beta-Implied Discount: The beta-implied discount is calculated using a mix of historical beta and aggregate beta on holdings last reported by the LIC. We estimate what the NTA would be at the date we release the note given the broader market movement and calculate the implied discount at the most recent share price. Volatility of Discount: A 10% discount is more meaningful for a LIC that has a more stable discount over time than for an LIC for which

discounts can move widely over time. An LIC with lower discount (or premium) volatility has a higher score and enhances the signal of the other value factors. Relative Strength Index: Discounts are ultimately sentiment driven factors, which are in turn impacted by price movements. For this, we include a long-term Relative Strength Index (14 Week, Wilder’s Smoothing). Worst Case Discount: The final factor is calculated by subtracting from the most recent pre-tax discount to NTA the following: 1) Present value of current fees into perpetuity, 2) Twice the Average Proportional Bid-Ask Spread, and the 3) Unrealised Tax Liabilities as % of NTA. MSWM Australia Quantitative Ratings: The Quantitative Ratings assigned to each LIC are a function of the output of the MSWM LIC Quantitative Model. Each rating corresponds to a quadrant in the Model – this relationship is illustrated below:



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55

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