Investment Update March 2011 Elstree Investment Management Limited (ABN ) AFS License number Level 15, 333 Collins Street Melbourne VIC 3000 Telephone:

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Elstree Investment Management Limited Executive summary Fund performance, Benefits of investing in the Australian Enhanced Income Fund, Global credit outlook, Australian listed credit outlook, Outlook for the Australian Enhanced Income Fund, Fund metrics and investment strategy, Appendix

Elstree Investment Management Limited Australian Enhanced Income Fund performance summary Fund has performed well post GFC. *Net return for the 12 month period to end February 2011 was 12.60% –This compares to the bank bill rate of return over the same period of 4.77%. Fund well positioned to capture both capital growth and higher income opportunities over the next 12 – 18 months. Current net asset value (NAV) of a unit $6.937 (as at February 28, 2011); –Total Fund return for CY 2011 expected to be c13.0% p.a. –Income return c7.50% p.a. * Return is net of fees and excludes the benefit of franking

Elstree Investment Management Limited Portfolio performance Period to end February 2011FundBank Bill 3 months1.90%1.25% 6 months9.24%2.48% 12 months12.60%4.77% * Returns are net of fees and exclude the benefit of franking

Benefits of investing in the Fund Pooled exposure to at least 30 ASX listed corporate borrowers –Risks reduced because of diversification. Gain access to the portfolio construction expertise of managers with a combined experience of over 75 years. Stable income return of c7.5% per NAV of $6.94 with capital volatility of around 5% per annum. ASX listed. Transparency; –Monthly NAV reporting. Enhanced liquidity provisioning; –ASX (daily) and –Quarterly off market at the Fund’s NAV. Elstree Investment Management Limited

Global credit outlook The outlook for credit globally is positive. Factors contributing to the positive outlook include; –The zero interest rate and enhanced liquidity provisioning policies of the global central banks in particular the US Federal Reserve, –Significantly improved corporate metrics (i.e stronger corporate balance sheets initiated by a combination of equity capital raisings and debt repayment). As a consequence of improved corporate metrics and enhanced liquidity provisioning global default rates have declined sharply. –The decline in default rates has not been mirrored by credit spreads which are lagging, When investors accept that default rates are likely to remain low credit spreads will contract generating capital growth in credit assets. Elstree Investment Management Limited

Actual high yield defaults and lagging credit spreads Elstree Investment Management Limited Moodys and Merrill Lynch

Elstree Investment Management Limited Australian listed credit outlook Underpinned by the same global influences as well as factors peculiar to Australia the outlook for listed credit is positive. Positive influences peculiar to Australia include; 1.Credit spreads are significantly wider in Australia listed credit than they are elsewhere in the world (refer chart). This means that investors in Australian listed credit are getting paid more to invest in listed credit than elsewhere in the world. 2.Declining return volatility is expected to encourage retail investors, who left the market when volatility spiked during the GFC, to return to the sector (refer chart). This will enhance liquidity which the sector has been devoid of throughout much of the post GFC period. 3.Generally favourable economic conditions and 4.Possibility of higher short term interest rates initiated by the RBA (refer chart).

Margins are wider in Australian listed credit Elstree Investment Management Limited Source: Merrill Lynch and Elstree

Volatility: Normalising Elstree Investment Management Limited Data: Elstree February 2011

Elstree Investment Management Limited The outlook for the Australian Enhanced Income Fund We estimate that the Australian Enhanced Income Fund’s total return will be approximately 13.0% per annum over the next 12 months and beyond. Our estimates are based on an average credit term of the Fund, assumes no defaults on coupon and principal payments and that discounts (i.e the difference between a security’s current market price and the PAR value) are amortised evenly over the expected term of each security. –The Fund’s total return of 13.0% is comprised of; Quarterly cash distributions estimated to be 7.50% per annum Franking benefit of approximately 1% per annum to the cash return and Capital growth (amortisation of discount over the security’s life) estimated to be 4.7%.

Elstree Investment Management Limited Fund metrics and investment strategy The Fund’s portfolio is well positioned to maximise capital gain and income opportunities over the next 12 – 18 months. –Pro active portfolio management strategies to take advantage of capital gain opportunities including; Continued overweight exposure to discounted non bank sector, Reduced exposure to bank sector which is fully priced as Basel 3 treatment of hybrid debt will necessitate a number of securities being repurchased at PAR and Take advantage of improved liquidity conditions to more actively manage the portfolio. Income yield of underpinned by; –Maturing coupons reinvested at higher absolute levels as a consequence of, Higher official interest rates initiated by the RBA. –Exercise of step ups.

Portfolio metric summary Metric Expected yield to maturity (YTM)13.0% Running yield7.50% Credit term (years)4.38 years Interest rate term (years)0.27 years Risk (Volatility of return – monthly annualised)4.0% Elstree Investment Management Limited

Appendix 1: Portfolio top 12 holdings (alphabetically) IssuerSecurity (ASX Ticker) AXA Subordinated Notes # Southern Cross Airports SKIESSAKHA NAB Income SecuritiesNABHA IAG Reset Exch SecIANG Australand AssetsAAZPB IAG Reset PrefsIAGPA Goodman PLUSGMPPA Multiplex SitesMXUPA ORICA SPSORIPB GUNNS ForestsGNSPA Paperlinx Step Up PrefsPXUPA Bendigo Bank Reset PrefBENPA # Unlisted