April 2012

Premium Asia Income fund

Disclaimer

This presentation is not financial product advice and is intended to provide information only. It does not take into account your individual objectives, financial situation or needs. You should assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision.

The information is taken from sources which are believed to be accurate but Premium China Funds Management accepts no liability of any kind to any person who relies on the information contained in the presentation. Unless expressly stated none of the information should be taken to be a recommendation.

Premium China Funds Management is the trading name of Premium China Funds Management Pty Ltd ACN 113 856 214, Australian Financial Services Licence No 291570.

Information in this presentation is believed to be accurate as at 13 April 2012.

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Disclaimer

Macquarie Investment Management Limited ABN 66 002 867 003 AFS License 237 492 (MIML) is the issuer of units in the fund. Investors should consider the Product Disclosure Statement (PDS) relating to the Fund in deciding whether to acquire or continue to hold units in the fund. The PDS is available from www.premiumchinafunds.com.au

• MIML is not an authorized deposit-taking institution for the purposes of the Banking Act (Cth) 1959. MIML’s obligations do not represent deposits with, or other liabilities Macquarie Bank Limited does not guarantee or otherwise provide assurance in respect of the obligations of MIML.

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Asian Credit Market

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Sufficient room for Asian debt market growth

JACI GDP (US$bn-Dec 2011) Market Value (US$bn) Index Weight (%)Index Market Value

to GDP (%)

China 5,926.61 41.04 12.8% 0.7%

Hong Kong 224.46 47.94 16.3% 21.4%

Indonesia 706.56 33.25 12.5% 4.7%

India 1,727.11 23.35 7.5% 1.4%

South Korea 1,014.48 65.89 22.5% 6.5%

Macau 27.96 0.60 0.2% 2.1%

Malaysia 237.80 11.88 4.3% 5.0%

Philippines 199.59 31.54 12.6% 15.8%

Pakistan 176.87 1.55 0.4% 0.9%

Singapore 208.76 21.50 7.3% 10.3%

Sri Lanka 49.55 2.50 0.8% 5.0%

Thailand 318.52 5.29 1.8% 1.7%

Taiwan 355.46 1.05 0.3% 0.3%

Vietnam 106.43 1.75 0.6% 1.6%

11,280.16 289.13 2.6%

Citigroup Australian Broad Investment Grade (AusBIG) Corporate Index

Australia 924.84 62.86 - 6.8%

Market Structure of JP Morgan Asia Credit Index (JACI), 30 th March, 2012

Source: Bloomberg

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Asian debt market has been growing

Source: Bloomberg, 30 March 2012

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China bonds are cheap – lagging in performance

Source: Bloomberg

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Asian high yield bonds are cheap – market too pessimistic about default

Source: Value Partners, as of 20 Jan 2012 *Source: Standard & Poor’s Global Fixed Income Research and Standard Poor’s Credit Pro, data excludes Japan, as of 2011.

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Asian bonds are cheap – Elevated Risk Premiums

Source: Bloomberg, Morgan Stanley

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High yield bonds in Asia have lower default rate

Source: Standard & Poor’s Global Fixed Income Research and Standard Poor’s Credit Pro, data excludes Japan, as of 2011.

Asian High Yield Default Rate was 12.9% in 1998

Asian high yield bonds’ default rate is much lower than the level of Asian financial crisis in 1998

Asian High Yield Default Rate was 1.77% in 2010

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M SCI AC ASIA PACIFIC

M SCI AC ASIA PAC EX JAPN

M SCI CHINA

M SCI WORLD

Citigroup US HY Corp

JACI HY

JACI HY Corp

JACI Composite

0%

2%

4%

6%

8%

10%

12%

14%

0%5%10%15%20%25%30%35%

Annualized Volatility

An

nu

aliz

ed P

erfo

rman

ce

Historical returns vs. historical volatility

Source: Bloomberg, Value Partners

Better Risk-Adjusted Performance

Period: Sep 2005 (JACI Inception) – Feb 2012

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Risk adjusted return of credit and equity

Source: Bloomberg, Value Partners

  Last 3 years Last 5 years

 Annual Return

Annual Volatility

Annual Return

Annual Volatility

JACI HY 20.6% 6.3% 9.3% 9.0%

JACI Composite 14.8% 3.5% 7.6% 4.7%

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Trade Examples

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High yield bond example – Country Garden

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Investment considerations:

- Country Garden, founded in 1997, is one of the leading suburban township developers in China. It is in the top-league of non state-owned developers and owns more than 54 million square meter of land bank as of the end of 2011.

- Country Garden has a quality and prudent management with good track records, which is very important in navigating the current tightening environment in the Chinese housing market. It recorded strong 2011 sales due to the its focus in lower-tier cities and suburban areas, which is less susceptible to policy tightening. The company generated two-third of its sales from its home base, Guangdong province which is one of the richest and most developed region in the country.

- Country Garden’s balance sheet liquidity remains satisfactory. Its leverage is moderate and its debt servicing ability remains healthy.

Past 12 month - Price TrendCurrency: USD

Coupon: 11.75%

Maturity (dd/mm/yyyy): 10/09/2014

Credit Ratings: BB

Indicative Offer Price: 105.75

Indicative Offer Yield: 9.02%

Implied Default Rate: 24.2%

Time to Maturity:2.41 years

High yield bond example – Bumi Resources

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Investment considerations:

- Headquartered in Jakarta, Bumi Resources is the largest thermal coal producer/exporter in Indonesia and also the second largest in the world. As of Jan 2011, Bumi reported a total of marketable coal reserves and resources exceeding 12bn ton. In 2010, Bumi produced 61mm ton of coal (mostly sold to power plants in Asian countries) and is expected to ramp up the annual production to 100mm ton by 2014.

- Outlook for Indonesian thermal coal industry remains favorable due to its low-cost production and the country’s proximity to Greater China who is constantly looking for steady coal supply for generating electricity to power its economy ahead. Bumi Resources, with its sizable scale and tremendous resources, stands to benefit from such ever increasing demand.

- Bumi’s leverage is slightly higher than its peers, due to its aggressive financial management to fulfill heavy capex needs. However, the company has been focusing on deleveraging as evidenced by the recent early repayment of loans. The positive outlook of the coal industry will help Bumi achieve its production target.

Past 12 month - Price TrendCurrency: USD

Coupon: 12.00%

Maturity (dd/mm/yyyy): 10/11/2016

Credit Ratings: BB

Indicative Offer Price: 109.625

Indicative Offer Yield: 9.40%

Implied Default Rate: 38.6%

Time to Maturity:4.58 years

Identifying Opportunity Due to difference in market participants, the convertible bond

market (mostly fast money accounts) and the high yield bond market (mostly long-only real money accounts) can have very different market actions during market rally and selloff.

From October to December 2011, Kaisa 8% 2015 convertible bond was sold off much more than the company’s 13.5% 2015 high yield bond. In October, the CB was yielding as much as 400bps more than the bond, and in December, the yield difference reached almost 600bps.

Investment Analysis Both the convertible and the high yield bond are of the same

seniority in the company’s capital structure, which gives CB & HY holders equal rights in bankruptcy claims.

Although the Chinese government continues to exercise very tight policy towards the property sector, we do not expect any major Chinese property developer to go bankrupt. Kaisa is a major developer in Shenzhen.

Valuation is favored towards the Kaisa CB, expecting the CB yield and the bond yield to converge to more reasonable level.

Investment Decision & Outcome Bought Kaisa CB at the end of October and again in December.

The yields have converged by the end of January 2012.

Kaisa CB YieldKaisa CB Yield

Kaisa HY Bond YieldKaisa HY Bond Yield

High yield vs convertible bond example – Kaisa

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Convertible bond example – BakrielandCurrency: USD

Coupon: 8.625%

Maturity (dd/mm/yyyy): 23/03/2015

Put (dd/mm/yyyy): 23/03/2013

Credit Ratings: N/A

Indicative Offer Price: 83.5

Indicative Offer Yield: 26.47% (to put date)

Time to Put: 1.14 years

Past 12 month - Price Trend

Investment considerations:

- Bakrieland engages in property development and toll road infrastructure in Indonesia. The company owns the largest development area and land bank in Jakarta prime Central Business District (CBD). Bakrieland’s toll road business compliments well with its suburban property development (very low cost land bank) by promoting traffic between these areas and central Jakarta, and it also provides stable recurring income to the company in the long run.

- As a real estate company, Bakrieland is a primary beneficiary of the continuously improving economic fundamental of Indonesia, as evidenced by the recent upgrade of the country’s sovereign rating to investment grade by Moody’s and Fitch. In fact, the encouraging sales of the recently launched Sentul Nirwana residential project in West Java partly reflects this fact.

- The convertible bond (which its embedded equity option way out of the money) is only slightly over a year away from the put date, when investors can sell it back to the issuer at par. The company’s cash position covers 80% of the bond redemption amount and given the valuable land bank on its balance sheet, we expect Bakrieland will be able to fully redeem the bond.

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Premium Asia Income Fund

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Premium Asia Income Fund

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Annual

2011 - - - - - - - - -1.0% +4.3% -2.4% +1.7% +2.4% 

2012 +3.5%  +3.3%  +0.5%                   +7.4%

 Performance Update (as at 30 Mar 2012)One month +0.5%Year-to-date +7.4%Since launch (including distribution)

+10.0%

Distribution (since launch)

+2.8%

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 Annualized Volatility (as at 30 Mar 2012)Premium Asia Income Fund 8.0%JACI Composite 11.4%

Premium Asia Income FundGeographic Breakdown Sector Breakdown

Credit Ratings

Source: Data as of 30 March 2012

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Performance of AUD vs JACI HY Corp

Source: Bloomberg

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Value Partners team approach

Strong synergy between equity and credit teams

Value Partners gets first calls for primary issues on equity and credit offerings Our large presence in the market allows us to negotiate terms for the best

prices for our clients

Both Equity and Credit teams can leverage our knowledge and relationships in the market to identify opportunities

Business Analysis done jointly by Equity and Credit teams Credit team is responsible for full credit analysis* while Equity team

supplements findings from equity research

*Full credit analysis includes, but not limited to: on the ground research, management evaluation, industry trends, cash flow projection, balance sheet analysis, liquidity analysis, debt profile, leverage analysis, credit peer comparison.

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Value Partners team approach

Value Partners takes a team-based approach to examine and analyze businesses in different angles from both equity and credit perspectives

Allows analysis on the full capital structure which is crucial for fixed income investments

EarningsProjection

Equity PeerComparison

Credit PeerComparison

LiquidityAnalysis

DebtProfile

LeverageAnalysis

Equities Debt

ManagementEvaluation

Cash FlowProjection

IndustryTrends

Balance SheetAnalysis

Equities & Debt

Credit ResearchCredit ResearchEquity ResearchEquity Research On the groundResearch

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Investment processFundamentals• Economic reports• GDP Growth • Inflation• Fiscal policies• Equity and Credit Valuations

Technicals• Market sentiment and fund flows• New issue calendar

Asset classes and sector allocationDetailed AnalysisStrong synergy: the credit team leverages the on-the-ground researches done by the equities team in Greater China

Execution, Risk Management & Portfolio Monitoring

Market technicals and portfolio construction

Monitoring and risk management

Top Down

Bottom UpCredit Team Full Credit Analysis*

Credit & Equity Team Business Analysis

Equity Team Equity Analysis and earnings projections

*Full credit analysis includes, but not limited to: on the ground research, management evaluation, industry trends, cash flow projection, balance sheet analysis, liquidity analysis, debt profile, leverage analysis, credit peer comparison.

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Identifying opportunities & detailed analysisWe are involved in primary issuance of new credits across Asia

Proprietary Screening Models that identify: Relative value across the capital structure Significant change in credit spread between companies within the same sector

and/or same rating

Any major policy and monetary change would lead us to evaluate the industries that would benefit from such change.

Identifying Opportunities

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Detailed Analysis

Bottom up analysisLiquidity, debt profile, leverage analysis, credit peer comparison (Credit team)On-the-ground research, management evaluation, industry trends, Cash flow

projection, balance sheet analysis (Credit & Equity team)Equity Analysis, Earnings projections (Equity team)

Favor companies with good balance sheet, strong cash flow and an experienced and well respected management teams.

Identify compelling value in comparison to similar names within the industry or relative to existing bonds issued by the same company but with different tenor or different seniority.

Execution, risk management & portfolio monitoring

Risk Management & Portfolio Monitoring

Centralized execution desk with a senior dealer dedicated to creditsTrade execution based on liquidity and best prices. Allocation of trades

is determined automatically in accordance with mandates and fund sizes

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Independent risk management team that reports to the deputy CEO

Centralized compliance checks

Analytical risk platforms RiskMetrics (Portfolio level risk and stress testing) SunGard / Monis (Pricing and position risk management)

Risk management methodologies Continual portfolio review on asset allocation and risk tolerance Single name risk (5-6% maximum exposure) Diversification across large number of issuers, sectors and countries

Execution

Risks within the Capital StructureCompany Capital Structure

Senior Secured BondBank Loan

Senior Unsecured Bond

Junior Unsecured Bond

Equity

Low

er

Ris

kH

ighe

r R

isk

AsianInvestment Grade

AsianHigh Yield

Credit Spread 100 – 400 bps 500 – 1100 bps

Coupon Fixed Fixed

Maturity 3 – 10 years 3 – 7 yearsConversionto Equity

No No

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