BlueChip20

Long Term Equity—Series 3 Separately managed account providing exposure to the S&P/ASX 20 Index

INDEPENDENT INVESTMENT RESEARCH September 2010

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September 2010

Contents

1. Offer Overview ..................................................................................................................................1

Product Summary

2. Investment View ................................................................................................................................1

Investor Suitability

3. Recommendation...............................................................................................................................1

4. SWOT Summary ................................................................................................................................2

Strengths

Weaknesses

Opportunities

Threats

5. Structure .............................................................................................................................................3

Product Overview

6. Management & Corporate Governance...........................................................................................5

BlackRock Inc.

Board of Directors

Management Team

7. Investment Process ............................................................................................................................5

Investment Objective

Rebalancing Process

Investment Loan

8. Performance Analytics ......................................................................................................................6

Historical Performance

9. S&P/ASX 20 Index Constituents.......................................................................................................8

10. Appendix – Ratings Process............................................................................................................9

September 2010

BlueChip20 Long Term Equity – Series 3 Separately managed account providing exposure to the S&P/ASX 20 Index.

1. Offer Overview Product Summary

BlueChip20 Long Term Equity - Series 3 (BlueChip20) is issued and

managed by BlackRock Investment Management (Australia) Limited

(BlackRock or the Manager). BlueChip20 is a passively managed index

portfolio, which aims to match the total returns of the S&P/ASX 20

Index. BlueChip20 is offered via a Separately Managed Account

(SMA) structure, which provides each investor with a separate

account to which their investments are allocated. BT Securities Ltd

will be providing access to an investment loan that offers a

maximum LVR of 80%, for those investors who pass the credit

requirements. A minimum investment amount of $10,000 for

unleveraged investors or $62,500 for investors utilising the

investment loan is required with no maximum amount. The

Manager has a default cash allocation of 2% of portfolio value. The

cash allocation will be used to cover any portfolio fees and expenses,

unless investors nominate fees to be paid out of a nominated bank

account, and as a buffer for any transaction discrepancies when

purchasing additional stock. Any dividends received will be

allocated to the cash account and reinvested, unless the investor

nominates a bank account into which he/she would like the

dividends periodically to be paid. Those investors that elect to use

the investment loan may nominate dividend income to be paid into

their loan account. Portfolios will be rebalanced on a daily basis,

subject to minimum trade requirements, with the objective of

making the necessary transactions to keep the cash balance at the

default level of 2%. Withdrawal requests can be made on any

business day and will be executed on the business day following the

request. Withdrawal requests can be for either a transfer of the

securities and/or a cash payment.

2. Investment View Investor Suitability

An investment in BlueChip20 is suitable for those investors who are

seeking long-term exposure to the 20 largest and most liquid

companies listed on the ASX via an easily accessible SMA platform.

Given BlueChip20 aims to match the returns of the S&P/ASX 20

Accumulation Index, an investment in BlueChip20 is suitable for

investors who are prepared to accept a passive management style

and have a positive long-term view on the S&P/ASX 20 Index. The

portfolio construction offers a reduced risk profile in the domestic

equity universe, given the size and liquidity of the constituents.

3. Recommendation Independent Investment Research has issued BlueChip20 Long

Term Equity – Series 3 with a RECOMMENDED rating.

Note: This report is based on the BlueChip20 Long Term Equity – Series 3 PDS, dated 19 July

2010, together with other information provided by BlackRock Investment Management (Australia) Limited as at August 2010.

Rating

Offer Details

Offer Period Open-ended

Listing Date Unlisted

Maturity (years) Open-ended

Min. Investment $10,000 or $62,500 for use of investment loan.

Liquidity Daily*

Distributions

Dividends will be allocated to the cash account and reinvested

unless otherwise specified.

* Withdrawal requests can be made on any business day. Requests will generally be actioned on the business day following the receipt of the request.

Fees (paid to advisors), incl. GST, %

Up-front Nil

Ongoing Up to 0.275 p.a.

Note: The above represent the maximum advisor fees payable by

investors. Actual fee levels are subject to the commercial

relationship between investors and advisors.

The investment opinion in this report is

current as at the date of publication.

Investors and advisers should be aware

that over time the circumstances of the

issuer and/or product may change which

may affect our investment opinion.

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September 2010

4. SWOT Summary Strengths

� SMA’s offer a transparent investment platform, with all taxes

and tax credits flowing through to investors.

� Investors have the ability to remove or replace stocks in the

portfolio. This may be beneficial to those investors who already

have sufficient exposure to stocks that comprise the S&P/ASX

20 Index. Note, investors that utilise the investment loan require

approval from BT Securities Ltd for any portfolio

customisations.

� The manager has access to wholesale brokerage rates which

tend to be less than those incurred by retail investors.

� An index fund is more tax effective than an actively managed

fund due to the reduced portfolio churn. Since the inception of

BlueChip20 in November 2005, the underlying stocks in the

S&P/ASX 20 Index have changed on four occasions.

� By mimicking the S&P/ASX 20 Index, the removal of stocks

when the index changes effectively acts as a stop-loss function.

� For those investors utilising the gearing facility, BT Securities

Ltd is offering a discounted interest rate to the standard BT

Securities variable rate and no margin calls.

Weaknesses

� An investment in this product means that the investor

effectively gives up his/her voting rights in the underlying

investments.

� The investor is unable to access Shareholder Purchase Plans

offered by the underlying investments.

Opportunities

� Brokerage costs may be reduced as the SMA trading is

conducted at a pooled level; therefore the Manager has the

ability to net the trading requirements on a daily basis. The cost

savings will depend on the daily transactional requirements.

� For those investors who take up the investment loan, the

gearing provides the potential for enhanced returns (at the risk

of increased losses).

Threats

� The S&P/ASX 20 Index has a moderate degree of stock

concentration risk, with five stocks accounting for in excess of

50% of the Index. As such, performance is sensitive to the

performance of these stocks.

� For those investors who elect to use the investment loan, the

loan has full recourse to investors therefore, if there are

insufficient funds to cover the outstanding loan payment at

maturity, the investor will be required to make up the shortfall.

� The Manager has the ability to use derivatives to mimic the

performance of the ASX/S&P 20 Index. While this may help

limit any loss incurred, if used it will result in additional costs

to the investor and may not be necessary.

Product Fees (paid by investors)

BlueChip 20 Sector Avg

Base Fees, % of Assets

Up-front1 0.0 0.0

Ongoing2 0.93 0.44

Exit3 0.0 0.0

1. 1. There are no explicit up-front fees; however investors will incur brokerage costs from the initial investment in

the portfolio constituents.

2. 2. Reflects maximum fees incurred. Includes the Advisor

fee of 0.275%, the Research and Consulting fee if 0.055% and the management fee. The annual

management fee is incurred on a tiered basis, with a maximum of 0.60% for the first $500,000 and a

minimum of 0.05% for investments of more than

$10,000,000. Refer to Fees section of the PDS for all

levels of fees. Note, brokerage fees will be an additional cost. We note that the advisor fees may be negotiated

by investors.

3. 3. Brokerage fees will be incurred if a cash withdrawal

request is made.

Performance Fees

N/A

Additional Costs

Those investors who elect to use the investment loan

will incur interest costs as well as any other costs associated with the facility.

Fee Commentary

We have compared the fee structure of BlueChip20 to Exchange Traded Funds (ETF) listed on the ASX. We

acknowledge that the BlueChip20 is unlisted; however

listed ETFs are the most appropriately comparable products on the market. The comparable sector

includes all ETF’s listed on the ASX, not just the ETF’s that mimic domestic indices. The maximum ongoing

management fee of 0.60%p.a. is higher than the

sector average, though only marginally, and this is to be expected given the BlueChip20 is unlisted. For the

larger investment amounts the management fee

becomes progressively less than the sector average.

Brokerage is an additional cost to investors. The Manager has access to wholesale brokerage rates of 0.05%. We note that this may be reduced as a result

of the netting ability of the Manager with respect to

transactions. Independent Investment Research considers the ongoing advisor fees to be low and notes

that investors may negotiate a lower fee with their

advisor.

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September 2010

Key Exposure

Underlying

Exposure

S&P/ASX 20 Index

FX Exposure No direct exposure, however stocks comprising the portfolio may have FX

exposure.

Exit Details

Exit Facility Investors can request withdrawal from the investment on any business day. The

Manager will execute the request on the

following business day. Investors can elect to receive a cash payment and/or

transfer the securities into their name and

obtain legal ownership of the stocks.

Issuer

Redemption

The issuer will terminate the SMA 80

years less one day after it is established.

The issuer can terminate the SMA prior to

this date by giving the required notice.

5. Structure Product Overview

BlueChip20 is issued and managed by BlackRock and provides

exposure to the S&P/ASX 20 Index with the aim of matching the

total returns of the index. BlueChip20 is passively managed with the

stocks in the portfolio changing only when there is a change in the

index by Standard & Poors (S&P). BlueChip20 is offered via an SMA

structure, meaning each investor is provided with separate accounts

to which their investments are allocated. This structure offers

investors the ability to substitute stocks in the portfolio to cater to

investor’s individual needs. The stocks comprising the portfolio are

beneficially owned by the investor, which means the tax position can

be managed by the investor, with all tax responsibilities flowing

through to the investor. The investor can transfer stock into the SMA

and may elect to lock the holdings of these stocks, meaning that the

stock/s will not be disposed of during the rebalancing of the

portfolio.

BlueChip20 will maintain a cash allocation of 2% to cover any fees

and expenses incurred, unless investors nominate fees to be paid out

of a nominated bank account, and/or a buffer for any transaction

discrepancies when purchasing additional stock. Any dividends received will be allocated to the cash account and

automatically reinvested unless investors request to have the dividends paid periodically into a nominated bank

account or their loan account. Portfolios will be rebalanced on a daily basis, with the objective of making the

necessary transactions to keep the cash balance at the default level of 2%. Necessary transactions include:

reinvestment of dividends; investments/withdrawals; or a change in the composition of the S&P/ASX 20 Index.

BT Securities Ltd will be providing access to an investment loan with a maximum LVR of 80%, for investors who

meet the credit requirements of the loan issuer. The terms of the lending facility are outlined below. Note,

investors that utilise the investment loan will have to have any portfolio customisations approved by BT Securities

Ltd.

Investors can make a withdrawal request, for some or all of the account subject to minimum withdrawal

requirements, on any business day. The request will be executed on the business day following the request.

Investors can request to receive either the securities comprising the portfolio or cash or a combination of both.

There are no withdrawal fees incurred for either cash or stock and no transfer fees if investors elect to receive the

securities. Investors who elect to receive cash will receive a payment net of outstanding fees and charges. A partial

withdrawal request will likely result in a rebalancing of the portfolio.

Investment Structure

Minimum investment of $10,000 or $62,500

RE and Manager

Investment Loan Provider

Beneficial ownership of shares

Investors

BlueChip 20 Long Term Equity –

Series 3

Separately Managed Accounts

Portfolio of stocks and cash

BT Securities Limited

BlackRock Investment Management

(Australia) Limited

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September 2010

Product Leverage na

Capital Protection na

Tax

Disclaimer: Tax consequences depend on individual circumstances. Investors must seek their own taxation

advice. The following comments show Independent Investment Research’s expectation of tax for ordinary Australian taxpayers, but cannot be considered tax advice.

Capital gains: Capital gains tax (CGT) is likely to apply upon disposal of securities within the portfolio. Disposal

of the securities may be triggered by the Manager due to a change in the portfolio or by an investor due to a withdrawal. Investors will likely be eligible for the 50% CGT discount upon sale of the securities, if held for more than 12 months.

Distributions: On income account in the year earned. Investors will be entitled to franking credits.

Interest deductibility:

Interest will likely be deductible for those investors that utilise the investment loan.

Foreign Income Fund (FIF):

No

Legal Structure

Wrapper: Separately Managed Account (SMA)

Responsible Entity: BlackRock Investment Management (Australia) Limited.

Custodian: BlackRock Investment Management (Australia) Limited.

Offer Document: The PDS, dated 19 July 2010, has been lodged with the Australian Securities Investment

Commission (ASIC) as required by the Corporations Act 2001.

Returns

Capital vs. Income: Returns will likely comprise both capital and income components.

Income Frequency: Any dividend income entitlements will be credited to the investors cash account, unless the investor elects to have the dividends paid out to a nominated bank account or their loan account. Most companies comprising the S&P/ASX 20 pay dividends on a semi-annual basis.

Foreign Currency Risk:

na

Investor Leverage

Available: BT Securities Ltd will be offering an investment loan that provides up to 80% LVR of the portfolio

value. The lending facility will be available to those investors who pass the credit requirements imposed by BT Securities Ltd.

Cost (incl. Fees): Standard BT Margin Lending Variable Rate less 50bps. Fixed rates are available on request. As at

1 September 2010 the BT Margin Lending Variable Rate was 9.49%p.a. No margin calls will apply. Interest payments must be paid throughout the term of the loan. Interest capitalisation will not be permitted.

Recourse: Full recourse to investors. Investors must repay any shortfall of the loan at expiry.

Risks Part B, page 5 of the PDS outlines the risks associated with an investment in BlueChip20. Some of the key risks include:

Risk of change of features:

The Manager has the right to change the features of the BlueChip20 at any time.

Suspension of withdrawals:

Withdrawals may be suspended in the event of a closure or disruption to the ASX or stocks comprising the portfolio.

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September 2010

6. Management & Corporate Governance BlackRock Inc.

BlackRock Inc. is an asset management group with a global presence, providing investment management, risk

management and advisory services to both institutional and retail clients across a range of asset classes. The

company is listed on the New York Stock Exchange under the code BLK. As at 31 March 2010, BlackRock had

US$3.36 trillion Assets Under Management (AUM). The three largest shareholders of the company are Bank Of

America Corporation (34.1%), PNC Financial Services Group Inc. (24.6%) and Barclays PLC (19.9%). Together they

account for 78.6% of the ownership of the company.

Board of Directors

The Board of Directors for BlackRock Inc. consists of 18 members. Of these Directors, eight are independent, which

means that less than the majority of Board Members are independent. While we note that the company is governed

by US corporations law, we note that this does not comply with best practices under Australian guidelines.

Management Team

The SMA will be managed by the Australian division of BlackRock Inc., BlackRock Investment Management

(Australia) Limited. The portfolio is passively managed with the changes to the constituents made only when there

is a change in the S&P/ASX 20 Index as determined by Standard & Poors (S&P). The investment process is largely

automated; therefore the management team has limited involvement.

7. Investment Process Investment Objective

The objective of BlueChip20 is to provide investors cost and tax effective access to the 20 largest and most liquid

stocks listed on the ASX. The Manager seeks to maintain a 2% cash holding with the balance of the portfolio fully

invested, to ensure investors remain close to fully invested at all times so performance is not diluted by a large cash

allocation.

Investment Process

The investment process is largely computer generated with human involvement limited to ensuring the daily

rebalancing and portfolio strategy is executed correctly. With respect to investments, the Manager has the ability to

reduce brokerage costs through pooling the daily transactions and netting any required transactions.

Funds will be invested in a portfolio that represents the S&P/ASX 20 Index, unless customised by the investor. The

portfolio will be passively managed with portfolio constituents only changing when there is a change to the index

constituents. This will occur as a result of corporate activity or a reduction in the stock’s size or liquidity that makes

it ineligible for inclusion in the index.

The Manager will allocate 2% of the portfolio to a cash account to cover any fees and other expenses incurred from

the management of the portfolio, unless investors nominate fees to be paid out of a nominated bank account. The

cash account may also be used as a buffer for any transaction discrepancies when purchasing additional stock.

Dividends will be allocated to the cash account, unless otherwise specified, and will be reinvested back into the

equity portfolio. If there is insufficient cash to pay fees and/or expenses, a sufficient number of shares may be sold

to cover the costs.

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September 2010

Rebalancing Process

The portfolio will be automatically rebalanced daily, subject to the minimum trade size, which will be 0.2% for

accounts less than $50,000 or $100 for accounts greater $50,000 per security, per trade, or as nominated by

investors. However, investor accounts will only be affected when;

� Investors withdraw cash and/or securities from the account; or

� The cash balance has moved away from the default value of 2%, dividend income received or fees/expenses

paid; or

� Change in the composition of the S&P/ASX 20 Index.

Trading is conducted on an aggregate level, which enables the Manager to execute the net trading requirements

across all portfolios. Netting the transaction requirements may result in reduced brokerage costs.

Investment Loan

The investment loan will be provided by BT Securities Ltd, the wealth management arm of Westpac Banking Corp.

The lending facility will be available to those investors who meet the credit requirements of the loan provider (to

be provided by BT Securities Ltd). Features of the loan include:

� Maximum LVR of 80% of the initial portfolio value;

� Variable interest rate of the standard BT Margin Lending Variable Rate less 50 bps. Fixed rates will be

available on request;

� Interest cannot be capitalised. It must be paid periodically throughout the term of the loan;

� Maximum loan term of 10 years;

� Minimum loan amount of $50,000 and maximum loan amount of $300,000;

� No margin calls;

� Full recourse to investors.

8. Performance Analytics Investors should note that the following analysis is based on historical performance and is not indicative of the

future performance of BlueChip20. The performance of BlueChip20 is based on the model portfolio, which consists

of the S&P/ASX 20 Index constituents. The actual performance of an investment in the BlueChip20 may differ if the

portfolio has been customised. Fees have not been taken into account when determining historical performance

figures and the analysis has been determined without leverage, given the leverage is an additional feature that can

be utilised by an investor if they so choose. The key outcomes of the Performance Analytics are:

� Since inception in November 2005, BlueChip20, based on the model portfolio, has performed largely in line

with the market. The difference in performance can be attributed to the cash holding maintained by the

Manager.

� The S&P/ASX 20 Accumulation Index, which BlueChip20 tracks, returned 6.42% per annum from November

2005 to July 2010, with volatility, as calculated by the standard deviation, of 15.68%. The volatility of

BlueChip20 was marginally lower than that of the index. We attribute this to the cash allocation.

� Since BlueChip20 inception, the S&P/ASX 20 Index has changed the underlying stocks on four occasions. We

expect changes to the index to continue to be infrequent in the future.

dd

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September 2010

Historical Performance

BlueChip20 was established in November 2005. Figure 1 compares the historical performance of the BlueChip20

portfolio with that of the S&P/ASX 20 Accumulation Index, since inception. BlueChip20 maintains a cash holding;

therefore, in a falling market may slightly outperform the market, whereas in a rising market may slightly

underperform the market. Fees have not been included in the historical performance analysis of BlueChip20.

Figure 1. Monthly Returns – BlueChip20 vs. S&P/ASX 20 Accumulation Index since inception

-12.00%

-10.00%

-8.00%

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

Dec

-05

Mar

-06

Jun-

06

Sep

-06

Dec

-06

Mar

-07

Jun-

07

Sep

-07

Dec

-07

Mar

-08

Jun-

08

Sep

-08

Dec

-08

Mar

-09

Jun-

09

Sep

-09

Dec

-09

Mar

-10

Jun-

10

S&P/ASX 20 Accum Index BlueChip20

Source: Independent Investment Research Pty Ltd/BlackRock Investment Management (Australia) Limited

Figure 2. Monthly Returns – BlueChip20 vs. S&P/ASX 20 Accumulation Index since inception

(November 2005 to July 2010)

BlueChip20 S&P/ASX 20 Accumulation Index

Return (% pa)

1 yr 11.34 11.74

3 yr -1.18 -1.21

Since Inception 6.33 6.42

Risk (%)

Std Dev (since inception) 15.33 15.68

Tracking Error 0.47

Source: Independent Investment Research Pty Ltd/BlackRock Investment Management (Australia) Limited

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September 2010

9. S&P/ASX 20 Index Constituents As at 2 September 2010, the constituents of the S&P/ASX 20 Index — and therefore of the BlueChip20 model

portfolio — are listed in Figure 3, along with the index weightings and sectors. We note that the index is comprised

primarily of stocks from the Materials and Financials sectors, with 60% of the Index constituents operating in these

sectors. Furthermore the top five constituents account for over 50% of the Index.

Figure 3: S&P/ASX 20 Index Constituents as at 2 September 2010

Source: IRESS

Stock Code Company Name Sector Weighting

(%)

AMP AMP Limited Financials 1.52

ANZ Australia & New Zealand Banking Group Limited Financials 8.43

BHP BHP Billiton Limited Materials 18.130

BXB Brambles Limited Industrials 1.21

CBA Commonwealth Bank of Australia Financials 11.340

CSL CSL Limited Health Care 2.73

FGL Foster’s Group Limited Consumer Staples 1.69

MQG Macquarie Group Limited Financials 1.87

NAB National Australia Bank Limited Financials 7.22

NCM Newcrest Mining Limited Materials 4.13

ORG Origin Energy Ltd Energy 1.95

QBE QBE Insurance Group Limited Financials 2.47

RIO Rio Tinto Limited Materials 4.46

SUN Suncorp-Metway Limited Financials 1.55

TLS Telstra Corporation Limited Telco Services 4.44

WBC Westpac Banking Corporation Financials 9.49

WDC Westfield Group Financials 3.84

WES Wesfarmers Limited Consumer Staples 5.40

WOW Woolworths Limited Consumer Staples 5.00

WPL Woodside Petroleum Limited Energy 3.13

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September 2010

10. Appendix – Ratings Process Independent Investment Research Pty Ltd “IIR” rating system.

IIR has developed a framework for rating investment product offerings in Australia. Our review process gives

consideration to a broad number of qualitative and quantitative factors. Essentially, the evaluation process includes

the following key factors: product management and underlying portfolio construction; investment management,

product structure, risk management, experience and performance; fees, risks and likely outcomes.

GRAPHS SCORE

Highly Recommended 83 and above

This is the highest rating provided by IIR, indicating this is a best of breed product that has exceeded the requirements of our review process across a number of key evaluation parameters and achieved exceptionally high scores in a number of categories. The product provides a highly attractive risk/return trade-off. The Fund is likely effectively to apply industry best practice to manage endogenous risk factors,

and, to the extent that it can, exogenous risk factors.

Recommended 75-82

This rating indicates that IIR believes this is a superior grade product that has exceeded the requirements of our review process across a number of key evaluation parameters and achieved exceptionally high scores in a number of categories. In addition, the product rates highly on one or two attributes in our key criteria. It has an above-average risk/return trade-off and should be able consistently to generate above average risk-adjusted returns in line with stated investment objectives. The Fund should be in a position effectively to manage endogenous risk factors, and, to the extent that it can,

exogenous risk factors. This should result in returns that reflect the expected level of risk.

Investment Grade 60-74

This rating indicates that IIR believes this is an above-average grade product that has exceeded the minimum requirements of our review process across a number of key evaluation parameters. It has an above-average risk/return trade-off and should be able to consistently generate above-average risk adjusted returns in line with stated investment objectives.

Speculative 40-59

This rating indicates that IIR believes this is a suitable product that has met the aggregate requirements of our review process across a number of key evaluation

criteria. The product provides some unique diversification opportunities, but may not stand apart from its peers. It has an acceptable risk/return trade-off and should generate risk adjusted returns in line with stated investment objectives. However, concerns over one or more features mean that it may not be suitable for most investors.

Not recommended 39 and below

This rating indicates that IIR believes that despite the product’s merits and attributes, it has failed to meet the minimum aggregate requirements of our review process across a number of key evaluation parameters. While this is a product below the minimum rating to be considered Investment Grade, this does not mean the product is without merit.

Funds in this category are considered to be susceptible to high risks that are not reflected by the projected return. Performance volatility, particularly on the down-side, is likely.

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