Investor Update

AGMNovember 2008

AGENDA• Depth and duration of global recession?

• How long will the bear market last?

• Portfolio strategy

• Investment process

• Performance

Economic Outlook• Systemic risk of financial system failure may

have past • Deleveraging cycle has began ensuring sub-

optimal growth for some time to come• Leading indicators are suggesting the global

economy is in for a protracted recession• Australian economy unlikely to soften as much

as G7. Outcome will depend on quantum of policy support and economic strength of trading partners

Credit markets are improvingTED spread: Spread of LIBOR over T-bills

0

50

100

150

200

250

300

350

400

450

500

01/06 04/06 07/06 10/06 01/07 04/07 07/07 10/07 01/08 04/08 07/08 10/08

GSJ BW Investment Research

Source: Goldman Sachs Research Estimates, Bloomberg

bpts

US commercial paper

-50

0

50

100

150

200

250

300

350

400

450

01/07 03/07 05/07 07/07 09/07 11/07 01/08 03/08 05/08 07/08 09/08 11/08

Spread of asset backed to non-financial paperBasis points

Source: Federal Reserve

US Retail Sales (Year on Year % Change)

US Unemployment

Source: GSJBW Research Estimates

Inflation peaks

Demand growth troughs

Rate cuts/profits fall

Demand growth peaks

Inventories rise/ input costs fall

Employment declines

Spare capacity

Inventories fall

Pent up demand

Purchasing power rises

New orders riseDemand growth troughs

Sales increaseProfits improve

Wages rise

Inflation accelerates

Interest rates rise

Purchasing power falls

Sales growth slow

Unemployment falls

Traditional I ndustrial Cycle

Source: GSJBW Research Estimates

Debt-Deflation Cycle

Distress selling

Deleveraging

Disinflation/Deflation

Wealth Destruction

Profits Decline

Bankruptcies/ Unemployment

Loss of confidence/ Pessimism

Velocity of money slows

Australian EconomyOutcome less clear

Supportive

• Strong financial system

• Monetary Stimulus

• Fiscal Support

Drag

• Softer global growth

• Credit rationing

• Household deleveraging

Resources

Growth in Emerging Asia?

Infrastructure

Business Investment

Treasury Estimates Look Optimistic

-

1

2

3

4

5

6

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

Public Spending% grow th

-

1

2

3

4

5

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

GDP% grow th

-6

-4

-2

-2

4

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

Housing Investment% grow th

-

1

2

3

4

5

6

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

Private Consumption% grow th

-

5

10

15

20

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

Business Investment% grow th

-3

-2

-1

-

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

Net Exports% contrib to grow th

Source: Com m onwealth Treasury, GSJBW Research

Australian Commonwealth Treasury: Key Economic Forecasts

Historical Treasury forecast GSJ BW forecast

Resources and Infrastructure have been a big support for the economy, if this were to reverse recession will be much deeper

Impact of terms of trade on EPS growth

-15

-10

-5

0

5

10

15

20

25

30

Mar-89 Mar-91 Mar-93 Mar-95 Mar-97 Mar-99 Mar-01 Mar-03 Mar-05 Mar-07 Mar-09

-30

-20

-10

0

10

20

30

40

50

Terms of Trade (LHS) Rolling 12 month EPS forward (RHS)

Ann % ch Ann % ch

GSJ BW Investment Research

Source: GSJBW Research Estimates

Australian Business Investment

8

9

10

11

12

13

14

15

16

17

Mar-75 Mar-79 Mar-83 Mar-87 Mar-91 Mar-95 Mar-99 Mar-03 Mar-07

% of GDP

Source: ABS

Market Outlook• While the downturn in activity might not be as

bad as offshore, local shares will inevitably taking their lead from International markets

• Shares are already priced for a sharp correction in 2009 earnings.

• The unknown is the shape of the recovery, are we in for a long period of sub-optimal growth? If so it is difficult to envisage a strong recovery in the value of risk assets.

BUY SIGNAL

All Ordinaries - Rolling 12m Performance

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

Dec-60

Dec-62

Dec-64

Dec-66

Dec-68

Dec-70

Dec-72

Dec-74

Dec-76

Dec-78

Dec-80

Dec-82

Dec-84

Dec-86

Dec-88

Dec-90

Dec-92

Dec-94

Dec-96

Dec-98

Dec-00

Dec-02

Dec-04

Dec-06

Source: IRESS, GSJBW Research estimates

22 mths

Periods of sustained >+15% performance:

12 mths

9 mths

14 mths

31 mths 13 mths

30 mths

4 mths

10 mths

41 mths

4 mths 4 mths

12 month decline > -40%

Recovery Phases from Major Market Falls

40

50

60

70

80

90

100

110

120

-6 -4 -2 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78

1928 Bear Market 1972 Bear Market 1980 Bear Market 1987 Bear Market 2008 Bear Market

Source: GSJBW Research Estimates, I ress

Peak: Feb 1929Recovery: Oct 1934

Peak: Sep 1987Recovery: J an 1993

Peak: J an 1973Recovery: Sep 1979

Peak: Nov 1980Recovery: Nov 1983

Peak: Nov 2007Recovery: ??

2 Years of negative returns are rareReal Australian Equity Returns

-60

-45

-30

-15

0

15

30

45

60

1885 1895 1905 1915 1925 1935 1945 1955 1965 1975 1985 1995 2005

Annual Return of All Ords Adjusted for Inflation%

WW1 Great Depression

Korean War

1st Oil price shock

Recession

Source: GSJBW Research Estimates,GFD

Market Cheap on Balance Sheet measuresMedian P/BV for ASX300

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Source: Worldscope, GSJ BW Research

Market Cheap on prospective profits (forecasts are to high)

ASX 200 Industrials Propective PER - Rolling 12 Months Forward

8

10

12

14

16

18

20

22

Aug-89

Jun-90

Apr-91

Feb-92

Dec-92

Oct-93

Aug-94

Jun-95

Apr-96

Feb-97

Dec-97

Oct-98

Aug-99

Jun-00

Apr-01

Feb-02

Dec-02

Oct-03

Aug-04

Jun-05

Apr-06

Feb-07

Dec-07

Oct-087

Average: 14.6

Average: 14.0(excl period Oct 98 - J ul 01)

Source: GSJBW Research estimates

Earnings Bubble Vs Price Bubble in 2000

Same story in Australia

Hedge Fund Capitulation(US Equity Holdings- Sept qtr V June qtr)

June 30-2008 Sept 30-2008Appaloosa $3.1bn $648m

Atticus $8.1bn $510m

Tudor $5.7bn $453m

Vinik $11.8bn $1.8m

Moore Capital $4.5bn $1.4bn

Jana $5.9bn $2.1bn

SAC $14.4bn $7.7bn

Defensive sectors have outperformedSector Performance

-50.0 -40.0 -30.0 -20.0 -10.0 0.0 10.0 20.0

Healthcare

Energy

Telecoms

Info Tech

Consumer Staples

Utilities

Banks

Resources

Financials

Materials

Industrials

REITs

Consumer Discretionary

Large Caps

Mid Caps

Small Caps

Sectors

(% Change)

% Change since 28 Oct 08

% Change since 31 Dec 07

Source: IRESS, GSJBW Research

As at 6 November 2008

-52.0

-51.7

Portfolio Strategy• Investors have pushed the premium on

earnings certainty and balance sheet strength to extremes

• Heavy supply of new equity continues as companies recapitalise balance sheets

• Earnings risk still to downside

Sector Strategy- no where to hide• Banks are still at risk from emerging non

performing loans and a slowing credit cycle• Resources will struggle as growth expectations

and commodity prices move lower• Domestic Cyclicals will struggle as earnings

disappoint with the economy slowing• Property will see ongoing equity supply and

downward revisions to valuations

Everything is on sale- a winning strategy is to:• Stick to stronger companies, investors will be surprised

at the contraction in weaker businesses. In this environment the strong get stronger and the weak fall by the wayside.

• Avoid leveraged balance sheets as these companies will inevitably have to recapitalise

• Cash is the only truly defensive asset, so called “defensive companies” are overvalued

• Buy cheap structural growth companies, the structurally impaired may not make it through this downturn

Investments Portfolio (Top 10)

NEWS CORP

PRIMARY HEALTHCARE

OIL SEARCH

ANZ Bank

WESTPAC BANKING

NATIONAL AUSTRALIA BANK

ARISTOCRAT LEISURE

BRAMBLES LIMITED

WOOLWORTHS LIMITED

HENDERSON GROUP PLC

Company Qualitative Score

Management Score

Target Upside

NEWS CORP ## ## ##

HARVEY NORMAN ## ## ##

CROWN LTD ## ## ##

PRIMARY HEALTHCARE ## ## ##

WESTPAC BANKING CORP ## ## ##

AXA ## ## ##

SEEK LTD ## ## ##

COCA-COLA AMATIL LTD ## ## ##

WOOLWORTHS LIMITED ## ## ##TELSTRA

## ## ##

SINGAPORE TELECOM ## ## ##

WESFARMERS LTD. ## ## ##

AMCOR ## ## ##

COMMONWEALTH BANK ## ## ##

MACMAHON HOLDINGS ## ## ##

HEALTHSCOPE ## ## ##

AUSTAR UNITED ## ## ##

BANK OF QUEENSLAND ## ## ##

BENDIGO BANK LIMITED ## ## ##

ADELAIDE BRIGHTON ## ## ##

INVESTMENT UNIVERSE RANKED (1-200)

ASX200 TOP Quartile

ASX 200Bottom Quartile

TARGET 3% OUTPERFORMANCE

Investments Portfolio (Top 10)

NEWS CORP

PRIMARY HEALTHCARE

OIL SEARCH

ANZ Bank

WESTPAC BANKING

NATIONAL AUSTRALIA BANK

ARISTOCRAT LEISURE

BRAMBLES LIMITED

WOOLWORTHS LIMITED

HENDERSON GROUP PLC

Company Qualitative Score

Management Score

Target Upside

NEWS CORP ## ## ##

HARVEY NORMAN ## ## ##

CROWN LTD ## ## ##

PRIMARY HEALTHCARE ## ## ##

WESTPAC BANKING CORP ## ## ##

AXA ## ## ##

SEEK LTD ## ## ##

COCA-COLA AMATIL LTD ## ## ##

WOOLWORTHS LIMITED ## ## ##TELSTRA

## ## ##

SINGAPORE TELECOM ## ## ##

WESFARMERS LTD. ## ## ##

AMCOR ## ## ##

COMMONWEALTH BANK ## ## ##

MACMAHON HOLDINGS ## ## ##

HEALTHSCOPE ## ## ##

AUSTAR UNITED ## ## ##

BANK OF QUEENSLAND ## ## ##

BENDIGO BANK LIMITED ## ## ##

ADELAIDE BRIGHTON ## ## ##

INVESTMENT UNIVERSE RANKED (1-200)

Funding Portfolio

SINGAPORE TELECOM

MACQUARIE INFRAST GRP

AMCOR

HEALTHSCOPE

TRANSURBAN

TOWER AUSTRALIA

BANK OF QUEENSLAND

BENDIGO BANK LIMITED

ADELAIDE BRIGHTONLION NATHAN

ASX200 TOP Quartile

ASX 200Bottom Quartile

ALF L

PORTFOLIO

$78m

$50m

Assets $128m

ALF Balance Sheet Funding $128m

SHAREHOLDER’S FUNDS

$78m

SHORTS / DEBT

$50m

TARGET 3% OUTPERFORMANCE ALFL TARGET 3% UNDERPERFORMANCE ALFs

ALF s

+Market+3%

Market - 3%

Market +7%

SHORT FUNDING IS DIFFERENT TO FINANCIAL LEVERAGE FROM DEBT

Leverage Debt Shorting

Stock Selection √ √

Economic Cycle √ -

Geopolitical Events √ -

Corporate Profitability √ -

Interest Rates √ -

Exogenous Factors √ -

1 MONTH 3 MONTHS 6 MONTHS 1 YEAR

PORTFOLIO BENCHMARK VALUE ADD PORTFOLIO BENCHMARK VALUE ADD PORTFOLIO BENCHMARK VALUE ADD PORTFOLIO BENCHMARK VALUE ADD

-15.9% -13.9% -2.0% -15.9% -20.0% 4.1% -21.3% -28.0% 6.7% -33.4% -38.7% 5.3%

                       

2 YEARS (ANNUALISED) 3 YEARS (ANNUALISED) SINCE INCEPTION (ANNUALISED) SINCE INCEPTION (CUMULATIVE)

PORTFOLIO BENCHMARK VALUE ADD PORTFOLIO BENCHMARK VALUE ADD PORTFOLIO BENCHMARK VALUE ADD PORTFOLIO BENCHMARK VALUE ADD

-8.0% -10.3% 2.3% 5.2% 0.6% 4.5% 9.3% 8.5% 0.8% 51.5% 46.6% 4.8%

COMPARATIVE PERFORMANCE

Consumer Discretionary Health Care

Webjet Ltd. 239,737 0.26% Primary Health Care Ltd. 5,309,233 5.74%

Tatts Group Ltd. 1,135,695 1.23% CSL Ltd. 1,456,000 1.58%

Crown Ltd. 3,539,925 3.83% 6,765,233 7.32%

Wotif.com Holdings Ltd. 2,501,580 2.71% I ndustrials

Harvey Norman Holdings Ltd. 645,000 0.70% SEEK Ltd. 1,163,045 1.26%

8,061,937 8.73% McMillan Shakespeare Ltd. 625,650 0.68%

Media Brambles Ltd. 1,588,000 1.72%

News Corp. 6,949,355 7.52% Virgin Blue Holdings Ltd. 2,708,891 2.93%

Austereo Group Ltd. 1,006,418 1.09% Qantas Airways Ltd. 713,259 0.77%

7,955,773 8.61% 6,798,845 7.36%

Consumer Staples I nformation Technology

Graincorp Ltd. 2,074,653 2.24% Melbourne IT Ltd. 900,720 0.97%

Goodman Fielder Ltd. 1,893,649 2.05% IRESS Market Technology Ltd. 1,506,482 1.63%

3,968,302 4.29% 2,407,202 2.60%

Energy Materials

WorleyParsons Ltd. 2,466,750 2.67% Rio Tinto Ltd. 2,643,677 2.86%

Roc Oil Co. Ltd. 773,645 0.84% Orica Ltd. 2,128,500 2.30%

Oil Search Ltd. 2,546,685 2.76% Nufarm Ltd. 218,200 0.24%

5,787,080 6.27% Mount Gibson I ron Ltd. 307,192 0.33%

Financials Mirabela Nickel Ltd. 733,403 0.79%

Westpac Banking Corp. 1,041,784 1.13% James Hardie Industries N.V. 1,700,000 1.84%

St. George Bank Ltd. 759,008 0.82% Imdex Ltd. 258,556 0.28%

National Australia Bank Ltd. 5,300,471 5.74% I luka Resources Ltd. 1,743,829 1.89%

Australia & New Zealand Banking Group Ltd. 4,214,886 4.56% Gunns Ltd. 3,795,742 4.10%

11,316,149 12.25% Fortescue Metals Group Ltd. 1,939,625 2.10%

Diversified Financials EQUINOX MINERALS CDI NPV 557,041 0.60%

Macquarie Group Ltd. 1,781,963 1.93% BHP Billiton Ltd. 4,052,952 4.38%

Henderson Group PLC 1,382,738 1.50% 20,078,717 21.71%

BT Investment Management Ltd. 661,695 0.72% Telecommunication Services

ASX Ltd. 1,767,688 1.91% Telstra Corp. Ltd. 1,442,000 1.56%

5,594,084 6.06% Reverse Corp. Ltd. 1,647,758 1.78%

I nsurance 3,089,758 3.34%

Tower Ltd. 689,927 0.75%

QBE Insurance Group Ltd. 3,187,500 3.45% TOTAL LONG PORTFOLIO 92,422,253 100.00%

AXA Asia Pacific Holdings Ltd. 1,408,000 1.52% TOTAL SHORT PORTFOLI O -36,996,541

5,285,427 5.72%

Real Estate Contact:

Stockland Australia 1,304,800 1.41% Justin Braitling

Lend Lease Corp. Ltd. 1,907,500 2.06% Australian Leaders Fund

GPT Group 306,007 0.33% info@braitlinginvestments.com.au

Australand Property Group 1,795,439 1.94%5,313,746 5.74%