Microcaps Teleconference 21 October 2009

 Melbourne based boutique investment manager established in 1998  First investment manager to exclusively target the Australian microcap sector  Largest specialist microcap investor in the Australian market  Has been investing in the Australian microcap sector for over 9 years  Track record of consistent long term performance  Joint venture partner of Australian Unity Who is Acorn Capital?

 We are stock pickers for the microcap sector  We are investors, not traders  We follow a research driven investment process  The analyst’s job is to select the best microcap stocks within their sector  Each analyst is fully responsible for his stock decisions, effectively a mini portfolio manager What do we do?

 All stocks outside the largest 250 by market capitalisation  Has total market capitalisation of $91B (1 Oct 2009)  Has over 1,700 companies  Largest company $423M  Average company size $54M * Data as at 1 October 2009 What is the Microcap sector?

 Provide exposure to different sectors of the general economy  More companies at early stage of corporate development (R&D and exploration type companies)  Smaller exposure to banks, insurance and media companies  Larger exposure to industrials, IT, healthcare & biotech and resource sectors  Higher volatility  Reduced liquidity  Source of stars (and almost all failures)  Less than 1% under-performance vs AllOrds over 35 years Microcap sector vs general market

 Capturing alpha by exploiting market inefficiencies  Under-researched  Poor information flow  Lack of liquidity  Large number of stocks  Can add significant alpha by finding future stars Why invest in the Microcap sector?

 Large number of stocks to choose from  Higher volatility  Reduced liquidity and higher transaction costs (crossing bid-ask spread)  Large % of developing companies  Source of almost all failures  Treacherous place for uninformed investors General risks of investing in the Microcap sector

 Diversified portfolio (of up to 80 stocks) across all sectors  Long term investment horizon to ride out volatility, diversified portfolio  Low turnover of diversified long-term portfolio (averaged low 20%), very active in primary market, large active broker network and patient anonymous dealing  Style neutral – allow investments in developing companies; long term investment horizon to allow companies to develop/mature; and diversified portfolio to capture potential stars  Sector neutral, style neutral, diversified portfolio, maximum investment 5%, maximum holding 7.5% and a research driven stock selection process - to minimize impact of failures  Research driven investment process by large dedicated in-house research team How does Acorn Capital mitigate the risk?

 Proprietary database enabling customised quant ranking  Conventional analytical framework, no black box - The company’s business - Competitive position - Business strategy -Management assessment -Strength of balance sheet and cash flow -Historical financial analysis -Scope for improving return on funds and margins -Earnings and cash flow estimates  Report on each company  Final ranking, selection for approved list, preferred portfolio and stock weights  On-going review of relative valuation Acorn Capital’s stock selection criteria

For investors looking for long-term investments in the microcap sector, Acorn Capital  Has a proven investment strategy that takes into account the specific characteristics/risks of the microcap sector  Has a proven research driven investment process that works  Has a 9-year track record of consistent long-term outperformance against the Microcap Benchmark 1  Which was tried and tested over bull and bear markets. 1.Over 9 years to Sep 2009, Acorn Capital Composite (pre-fees) returned 15.77% p.a., vs 8.85% p.a. for the Microcap Accumulation Index, 7.80% p.a. for the Small Ords Accumulation Index, and 8.59% p.a. for the All Ords Accumulation Index Why Acorn Capital?

1. Acorn Capital’s investment strategy was validated  i.e. fully invested, style and sector neutral 2. Acorn Capital’s investment process proved robust  i.e. the singular importance of good management, good corporate governance and good disclosure to small/microcap companies  Companies with a good track record are more resilient in difficult times 3. Acorn Capital’s clients were supportive and didn’t panic  i.e. they understand that microcaps are more volatile than large caps and thus offer potentially superior returns over the long term Lessons drawn from the GFC and its aftermath

 FY2008/09 was a tale of two halves, with big turnaround in performance in Microcap sector in 2nd half  Characterised by a rebound in the small to microcap end of the market after being significantly oversold  The Acorn Capital Microcap Trust underperformed the AllOrds index by 20.4% in the 1st half  But in 2nd half, it outperformed the AllOrds index by 32.3%, a significant turnaround Portfolio Performance 1.Source: S&P/ASX Indices, Australian Graduate School of Management & Acorn Capital.

 The Acorn Capital Microcap Trust (wholesale) has returned 16.09% p.a. (post-fees) since inception (8 years & 7 months) 1.Source: S&P/ASX Indices, Australian Graduate School of Management & Acorn Capital. 2.Acorn Capital Microcap Trust (Wholesale) Inception: 28 February 2001 – Returns are calculated after fees and expenses Portfolio Performance

Important information Applications for investments in these products may only proceed on the respective application attached to or accompanying the current Product Disclosure Statement (PDS). A PDS containing full details should be obtained before making any investment decision. A Product Disclosure Statement (PDS) for these products is available at or by calling us on You should consider the PDS in deciding whether to acquire, or continue to hold the product. This information has been prepared as general information for use by financial advisers only. It does not take into account your circumstances. While every care has been taken in the preparation of this information, we cannot warranty its accuracy or completence and we reserve the right to make corrections. Information can change over time. Past performance is not a reliable indicator of future performance.