1. July 2014 Investment review

2. Australian Equities 2  6.5% pullback to date.  DNR outperforming the month substantially.  CCY and bond yields are the key driver of the pullback.  We like buying CCY related pullbacks – PE is getting cheaper and earnings outlook stronger (every 10% pullback in CCY adds circa 8% to earnings).  PE is 13.7x and div yield on High Conviction is 5.8% and Income is 6%.  Risk is CCY keeps falling and US market rolls over which could add to the pullback creating an overshoot.  We are topping up banks and other oversold situations.

3. Origin Energy 3 Thesis  Market has been focused on near term issues with electricity demand (warm winter, solar) and a competitive environment.  APLNG now nine months away and investors can expect a wall of cash on completion.  Risks around construction are reducing but production risks remain. Project is 80% complete.  Valuation: PE 20x FY15 but drops to 10x by FY17. Dividend will double.

4. Macquarie Atlas 4 Thesis  Improving quality not yet recognised by the market.  High quality toll roads in France – only 2 years in 51 with negative growth. Stimulus package to drive traffic and increase tolls.  De-gearing and restructuring to release significant cashflow. Dividend forecast to grow from 13 cents to 25 cents by 2017.  Risks – Euro, has traded with yield stocks this month.  Valuation: EV/EBITDA 10.5 versus 28.5x for Brisbane motorways.

5. Treasury Wines 5 Thesis  Takeover has fallen through.  Stock remains on a recovery path with 1Q15 ahead of schedule, Penfolds launch has been pulled forward to Oct which augers well for FY15. Management flagging asset sales and acquisitions.  Significant leverage to a lower CCY  Risks will be stale owners in the stock for the takeover  Valuation: PE 20x FY15 on subdued forecasts. Significant earnings turnaround opportunity. 1c CCY move adds $5.5m to EBIT plus competitive position improves.

6. Fixed Interest 6  The past two weeks have seen a selloff in listed hybrids.  This sell off started with retail clients selling existing hybrids to fund the $3.6 billion of new securities issued, (CBA, Macquarie, Challenger and Bendigo Bank).  The widening in margins is a sector specific occurrence, not as a result of credit market deteriorating.  The Dalton Nicol Reid hybrid portfolio has made a number of key investment decisions in recent years:  Biasing away from the newer style higher risk hybrid investments which we did not think the market was pricing appropriately.  Staying short duration given we did not see value in the long dated bonds especially if interest rates start rising.  These decisions have assisted with performance this month (-0.45% MTD, YTD performance +5.16%) as the selling has been focused on the higher risk hybrids.  We are seeking to remain in the better quality hybrids, and use cash from maturing notes to  Buy high quality securities that get sold off  Improve credit quality of portfolio by adding semi Govt ETF’s

7. Fixed Interest 7

8. Key Portfolio Moves – ANZPA  The Australian banks are very well capitalised and overseen by the regulatory body APRA.  The federal governments, Financial System Inquiry, (FSI), led by former Commonwealth Bank boss David Murray, will report recommendations to government in November.  It is believed he will recommend Australian banks hold higher levels of Tier 1 capital.  This will negatively affect equity holders, with lower returns on equity, while benefiting bond and hybrid holders.  We used this recent selling to top up the holdings in ANZ Convertible Preference Shares, (ANZPA).  Valuation: At top up price, the trading margin was 3.08% with a yield to maturity of 5.81% with a redemption date of 16/12/2016.  ANZPA is a lower risk pre Basel III complaint hybrid. This means there is no common equity trigger or non-viability triggers as found in new bank hybrids issued. 8

9. 9 Westfield Corporation (WFD.ASX) Westfield Corporation is the entity created from the demerger of Westfield Group’s international assets from their Australian malls:  Focussed on the US, UK/European retail markets  Portfolio of 40 shopping centres, with a combined asset value of US$17.6 billion  Further assets under management of US$27.7 billion  Retailer demand for space in iconic flagship assets remain strong  Strong 1H14 operational result with comp NOI growth of +5.3%, and comp specialty sales +4.2% reflecting solid retail conditions  Current and future development pipeline of approx. US$6 billion (WFD share) with expected yield on cost of 7 – 8 % on new projects  WFD is fairly priced, however high quality assets, defensive USD exposure and attractive growth profile could provide share price support

10. 10 Disclaimer DISCLAIMER This document has been prepared by Dalton Nicol Reid Pty Ltd, AFS Representative - 294844 of DNR AFSL Pty Ltd ABN 39 118 946 400, AFSL 301658. It is general information only and is not intended to be a recommendation to invest in any product or financial service mentioned above. Whilst Dalton Nicol Reid has used its best endeavours to ensure the information within this document is accurate it cannot be relied upon in any way and recipients must make their own enquiries concerning the accuracy of the information within. The general information in this document has been prepared without reference to any recipients objectives, financial situation or needs. Before making any financial investment decisions we recommend recipients obtain legal and taxation advice appropriate to their particular needs. Investment in a Dalton Nicol Reid individually managed account can only be made on completion of all the required documentation.