INDEPENDENT

INVESTMENT RESEARCH September 2010

BlueChip20
Long Term Equity—Series 3
Separately managed account
providing exposure to the S&P/ASX 20 Index
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 September 2010

Contents
1. Offer Overview ..................................................................................................................................1
Product Summary
2. Investment View ................................................................................................................................1
Investor Suitability
3. Recommendation ...............................................................................................................................1
4. SWOT Summary ................................................................................................................................2
Strengths
Weaknesses
Opportunities
Threats
5. Structure .............................................................................................................................................3
Product Overview
6. Management & Corporate Governance ...........................................................................................5
BlackRock Inc.
Board of Directors
Management Team
7. Investment Process ............................................................................................................................5
Investment Objective
Rebalancing Process
Investment Loan
8. Performance Analytics ......................................................................................................................6
Historical Performance
9. S&P/ASX 20 Index Constituents.......................................................................................................8
10. Appendix – Ratings Process............................................................................................................9
 September 2010

BlueChip20 Long Term Equity – Series 3

Separately managed account providing exposure to the S&P/ASX 20 Index.

1. Offer Overview
Product Summary
Note: This report is based on the BlueChip20
BlueChip20 Long Term Equity - Series 3 (BlueChip20) is issued and Long Term Equity – Series 3 PDS, dated 19 July
managed by BlackRock Investment Management (Australia) Limited 2010, together with other information provided by
BlackRock Investment Management (Australia)
(BlackRock or the Manager). BlueChip20 is a passively managed index Limited as at August 2010.
portfolio, which aims to match the total returns of the S&P/ASX 20
Index. BlueChip20 is offered via a Separately Managed Account
(SMA) structure, which provides each investor with a separate
account to which their investments are allocated. BT Securities Ltd
Rating
will be providing access to an investment loan that offers a
maximum LVR of 80%, for those investors who pass the credit
requirements. A minimum investment amount of $10,000 for
unleveraged investors or $62,500 for investors utilising the
investment loan is required with no maximum amount. The
Manager has a default cash allocation of 2% of portfolio value. The
cash allocation will be used to cover any portfolio fees and expenses,
unless investors nominate fees to be paid out of a nominated bank
account, and as a buffer for any transaction discrepancies when
purchasing additional stock. Any dividends received will be
allocated to the cash account and reinvested, unless the investor
nominates a bank account into which he/she would like the Offer Details
dividends periodically to be paid. Those investors that elect to use Offer Period Open-ended
the investment loan may nominate dividend income to be paid into
Listing Date Unlisted
their loan account. Portfolios will be rebalanced on a daily basis,
Maturity (years) Open-ended
subject to minimum trade requirements, with the objective of
making the necessary transactions to keep the cash balance at the $10,000 or $62,500 for use of
Min. Investment
investment loan.
default level of 2%. Withdrawal requests can be made on any
Liquidity Daily*
business day and will be executed on the business day following the
Dividends will be allocated to
request. Withdrawal requests can be for either a transfer of the Distributions the cash account and reinvested
securities and/or a cash payment. unless otherwise specified.

* Withdrawal requests can be made on any business day.

2. Investment View Requests will generally be actioned on the business day following
the receipt of the request.

Investor Suitability
An investment in BlueChip20 is suitable for those investors who are
seeking long-term exposure to the 20 largest and most liquid
companies listed on the ASX via an easily accessible SMA platform.
Given BlueChip20 aims to match the returns of the S&P/ASX 20
Accumulation Index, an investment in BlueChip20 is suitable for
investors who are prepared to accept a passive management style
and have a positive long-term view on the S&P/ASX 20 Index. The
portfolio construction offers a reduced risk profile in the domestic
equity universe, given the size and liquidity of the constituents.
3. Recommendation
Independent Investment Research has issued BlueChip20 Long
Term Equity – Series 3 with a RECOMMENDED rating.
Fees (paid to advisors), incl. GST, %
Up-front Nil
Ongoing Up to 0.275 p.a.
Note: The above represent the maximum advisor fees payable by
investors. Actual fee levels are subject to the commercial
relationship between investors and advisors.
The investment opinion in this report is
current as at the date of publication.
Investors and advisers should be aware
that over time the circumstances of the
issuer and/or product may change which
may affect our investment opinion.

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4. SWOT Summary
Strengths

SMA’s offer a transparent investment platform, with all taxes
and tax credits flowing through to investors.

Investors have the ability to remove or replace stocks in the
portfolio. This may be beneficial to those investors who already
have sufficient exposure to stocks that comprise the S&P/ASX
20 Index. Note, investors that utilise the investment loan require
approval from BT Securities Ltd for any portfolio
customisations.

The manager has access to wholesale brokerage rates which
tend to be less than those incurred by retail investors.

An index fund is more tax effective than an actively managed
fund due to the reduced portfolio churn. Since the inception of
BlueChip20 in November 2005, the underlying stocks in the
S&P/ASX 20 Index have changed on four occasions.

By mimicking the S&P/ASX 20 Index, the removal of stocks
when the index changes effectively acts as a stop-loss function.

For those investors utilising the gearing facility, BT Securities
Ltd is offering a discounted interest rate to the standard BT
Securities variable rate and no margin calls.
Weaknesses

An investment in this product means that the investor
effectively gives up his/her voting rights in the underlying
investments.

The investor is unable to access Shareholder Purchase Plans
offered by the underlying investments.
Opportunities

Brokerage costs may be reduced as the SMA trading is
conducted at a pooled level; therefore the Manager has the
ability to net the trading requirements on a daily basis. The cost
savings will depend on the daily transactional requirements.

For those investors who take up the investment loan, the
gearing provides the potential for enhanced returns (at the risk
of increased losses).
Threats

The S&P/ASX 20 Index has a moderate degree of stock
concentration risk, with five stocks accounting for in excess of
50% of the Index. As such, performance is sensitive to the
performance of these stocks.

For those investors who elect to use the investment loan, the
loan has full recourse to investors therefore, if there are
insufficient funds to cover the outstanding loan payment at
maturity, the investor will be required to make up the shortfall.

The Manager has the ability to use derivatives to mimic the
performance of the ASX/S&P 20 Index. While this may help
limit any loss incurred, if used it will result in additional costs
to the investor and may not be necessary.
September 2010
Product Fees (paid by investors)
BlueChip 20 Sector Avg
Base Fees, % of
Assets
Up-front1 0.0 0.0
Ongoing2 0.93 0.44
Exit3 0.0 0.0
1. 1. There are no explicit up-front fees; however investors
will incur brokerage costs from the initial investment in
the portfolio constituents.
2. 2. Reflects maximum fees incurred. Includes the Advisor
fee of 0.275%, the Research and Consulting fee if
0.055% and the management fee. The annual
management fee is incurred on a tiered basis, with a
maximum of 0.60% for the first $500,000 and a
minimum of 0.05% for investments of more than
$10,000,000. Refer to Fees section of the PDS for all
levels of fees. Note, brokerage fees will be an additional
cost. We note that the advisor fees may be negotiated
by investors.
3. 3. Brokerage fees will be incurred if a cash withdrawal
request is made.
Performance Fees
N/A
Additional Costs
Those investors who elect to use the investment loan
will incur interest costs as well as any other costs
associated with the facility.
Fee Commentary
We have compared the fee structure of BlueChip20 to
Exchange Traded Funds (ETF) listed on the ASX. We
acknowledge that the BlueChip20 is unlisted; however
listed ETFs are the most appropriately comparable
products on the market. The comparable sector
includes all ETF’s listed on the ASX, not just the ETF’s
that mimic domestic indices. The maximum ongoing
management fee of 0.60%p.a. is higher than the
sector average, though only marginally, and this is to
be expected given the BlueChip20 is unlisted. For the
larger investment amounts the management fee
becomes progressively less than the sector average.
Brokerage is an additional cost to investors. The
Manager has access to wholesale brokerage rates of
0.05%. We note that this may be reduced as a result
of the netting ability of the Manager with respect to
transactions. Independent Investment Research
considers the ongoing advisor fees to be low and notes
that investors may negotiate a lower fee with their
advisor.
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 September 2010

5. Structure
Product Overview
BlueChip20 is issued and managed by BlackRock and provides Key Exposure
exposure to the S&P/ASX 20 Index with the aim of matching the Underlying S&P/ASX 20 Index
total returns of the index. BlueChip20 is passively managed with the Exposure

stocks in the portfolio changing only when there is a change in the FX Exposure No direct exposure, however stocks
comprising the portfolio may have FX
index by Standard & Poors (S&P). BlueChip20 is offered via an SMA exposure.
structure, meaning each investor is provided with separate accounts
to which their investments are allocated. This structure offers
investors the ability to substitute stocks in the portfolio to cater to Exit Details
investor’s individual needs. The stocks comprising the portfolio are Exit Facility Investors can request withdrawal from the
investment on any business day. The
beneficially owned by the investor, which means the tax position can Manager will execute the request on the
be managed by the investor, with all tax responsibilities flowing following business day. Investors can
elect to receive a cash payment and/or
through to the investor. The investor can transfer stock into the SMA transfer the securities into their name and
and may elect to lock the holdings of these stocks, meaning that the obtain legal ownership of the stocks.

stock/s will not be disposed of during the rebalancing of the Issuer The issuer will terminate the SMA 80
Redemption years less one day after it is established.
portfolio. The issuer can terminate the SMA prior to
this date by giving the required notice.
BlueChip20 will maintain a cash allocation of 2% to cover any fees
and expenses incurred, unless investors nominate fees to be paid out
of a nominated bank account, and/or a buffer for any transaction
discrepancies when purchasing additional stock. Any dividends received will be allocated to the cash account and
automatically reinvested unless investors request to have the dividends paid periodically into a nominated bank
account or their loan account. Portfolios will be rebalanced on a daily basis, with the objective of making the
necessary transactions to keep the cash balance at the default level of 2%. Necessary transactions include:
reinvestment of dividends; investments/withdrawals; or a change in the composition of the S&P/ASX 20 Index.

BT Securities Ltd will be providing access to an investment loan with a maximum LVR of 80%, for investors who
meet the credit requirements of the loan issuer. The terms of the lending facility are outlined below. Note,
investors that utilise the investment loan will have to have any portfolio customisations approved by BT Securities
Ltd.

Investors can make a withdrawal request, for some or all of the account subject to minimum withdrawal
requirements, on any business day. The request will be executed on the business day following the request.
Investors can request to receive either the securities comprising the portfolio or cash or a combination of both.
There are no withdrawal fees incurred for either cash or stock and no transfer fees if investors elect to receive the
securities. Investors who elect to receive cash will receive a payment net of outstanding fees and charges. A partial
withdrawal request will likely result in a rebalancing of the portfolio.

Investment Structure
Investment Loan Provider
Investors BT Securities Limited

Minimum investment of Beneficial ownership

$10,000 or $62,500 of shares

BlueChip 20 Long BlackRock Investment

RE and Manager
Term Equity – Management
Series 3 (Australia) Limited

Separately Managed
Accounts

Portfolio of stocks
and cash

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 September 2010

Product Leverage na

Capital Protection na

Tax

Disclaimer: Tax consequences depend on individual circumstances. Investors must seek their own taxation
advice. The following comments show Independent Investment Research’s expectation of tax for
ordinary Australian taxpayers, but cannot be considered tax advice.

Capital gains: Capital gains tax (CGT) is likely to apply upon disposal of securities within the portfolio. Disposal
of the securities may be triggered by the Manager due to a change in the portfolio or by an
investor due to a withdrawal. Investors will likely be eligible for the 50% CGT discount upon sale
of the securities, if held for more than 12 months.

Distributions: On income account in the year earned. Investors will be entitled to franking credits.

Interest Interest will likely be deductible for those investors that utilise the investment loan.
deductibility:

Foreign Income No
Fund (FIF):

Legal Structure

Wrapper: Separately Managed Account (SMA)

Responsible Entity: BlackRock Investment Management (Australia) Limited.

Custodian: BlackRock Investment Management (Australia) Limited.

Offer Document: The PDS, dated 19 July 2010, has been lodged with the Australian Securities Investment
Commission (ASIC) as required by the Corporations Act 2001.

Returns

Capital vs. Income: Returns will likely comprise both capital and income components.

Income Frequency: Any dividend income entitlements will be credited to the investors cash account, unless the
investor elects to have the dividends paid out to a nominated bank account or their loan account.
Most companies comprising the S&P/ASX 20 pay dividends on a semi-annual basis.

Foreign Currency na
Risk:

Investor Leverage

Available: BT Securities Ltd will be offering an investment loan that provides up to 80% LVR of the portfolio
value. The lending facility will be available to those investors who pass the credit requirements
imposed by BT Securities Ltd.

Cost (incl. Fees): Standard BT Margin Lending Variable Rate less 50bps. Fixed rates are available on request. As at
1 September 2010 the BT Margin Lending Variable Rate was 9.49%p.a. No margin calls will apply.
Interest payments must be paid throughout the term of the loan. Interest capitalisation will not be
permitted.

Recourse: Full recourse to investors. Investors must repay any shortfall of the loan at expiry.

Risks Part B, page 5 of the PDS outlines the risks associated with an investment in BlueChip20. Some of
the key risks include:

Risk of change of The Manager has the right to change the features of the BlueChip20 at any time.
features:

Suspension of Withdrawals may be suspended in the event of a closure or disruption to the ASX or stocks
withdrawals: comprising the portfolio.

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 September 2010

6. Management & Corporate Governance

BlackRock Inc.
BlackRock Inc. is an asset management group with a global presence, providing investment management, risk
management and advisory services to both institutional and retail clients across a range of asset classes. The
company is listed on the New York Stock Exchange under the code BLK. As at 31 March 2010, BlackRock had
US$3.36 trillion Assets Under Management (AUM). The three largest shareholders of the company are Bank Of
America Corporation (34.1%), PNC Financial Services Group Inc. (24.6%) and Barclays PLC (19.9%). Together they
account for 78.6% of the ownership of the company.

Board of Directors
The Board of Directors for BlackRock Inc. consists of 18 members. Of these Directors, eight are independent, which
means that less than the majority of Board Members are independent. While we note that the company is governed
by US corporations law, we note that this does not comply with best practices under Australian guidelines.

Management Team
The SMA will be managed by the Australian division of BlackRock Inc., BlackRock Investment Management
(Australia) Limited. The portfolio is passively managed with the changes to the constituents made only when there
is a change in the S&P/ASX 20 Index as determined by Standard & Poors (S&P). The investment process is largely
automated; therefore the management team has limited involvement.

7. Investment Process
Investment Objective
The objective of BlueChip20 is to provide investors cost and tax effective access to the 20 largest and most liquid
stocks listed on the ASX. The Manager seeks to maintain a 2% cash holding with the balance of the portfolio fully
invested, to ensure investors remain close to fully invested at all times so performance is not diluted by a large cash
allocation.

Investment Process
The investment process is largely computer generated with human involvement limited to ensuring the daily
rebalancing and portfolio strategy is executed correctly. With respect to investments, the Manager has the ability to
reduce brokerage costs through pooling the daily transactions and netting any required transactions.
Funds will be invested in a portfolio that represents the S&P/ASX 20 Index, unless customised by the investor. The
portfolio will be passively managed with portfolio constituents only changing when there is a change to the index
constituents. This will occur as a result of corporate activity or a reduction in the stock’s size or liquidity that makes
it ineligible for inclusion in the index.
The Manager will allocate 2% of the portfolio to a cash account to cover any fees and other expenses incurred from
the management of the portfolio, unless investors nominate fees to be paid out of a nominated bank account. The
cash account may also be used as a buffer for any transaction discrepancies when purchasing additional stock.
Dividends will be allocated to the cash account, unless otherwise specified, and will be reinvested back into the
equity portfolio. If there is insufficient cash to pay fees and/or expenses, a sufficient number of shares may be sold
to cover the costs.

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 September 2010
Rebalancing Process
The portfolio will be automatically rebalanced daily, subject to the minimum trade size, which will be 0.2% for
accounts less than $50,000 or $100 for accounts greater $50,000 per security, per trade, or as nominated by
investors. However, investor accounts will only be affected when;

Investors withdraw cash and/or securities from the account; or

The cash balance has moved away from the default value of 2%, dividend income received or fees/expenses
paid; or

Change in the composition of the S&P/ASX 20 Index.

Trading is conducted on an aggregate level, which enables the Manager to execute the net trading requirements
across all portfolios. Netting the transaction requirements may result in reduced brokerage costs.

Investment Loan
The investment loan will be provided by BT Securities Ltd, the wealth management arm of Westpac Banking Corp.
The lending facility will be available to those investors who meet the credit requirements of the loan provider (to
be provided by BT Securities Ltd). Features of the loan include:

Maximum LVR of 80% of the initial portfolio value;

Variable interest rate of the standard BT Margin Lending Variable Rate less 50 bps. Fixed rates will be
available on request;

Interest cannot be capitalised. It must be paid periodically throughout the term of the loan;

Maximum loan term of 10 years;

Minimum loan amount of $50,000 and maximum loan amount of $300,000;

No margin calls;

Full recourse to investors.

8. Performance Analytics
Investors should note that the following analysis is based on historical performance and is not indicative of the
future performance of BlueChip20. The performance of BlueChip20 is based on the model portfolio, which consists
of the S&P/ASX 20 Index constituents. The actual performance of an investment in the BlueChip20 may differ if the
portfolio has been customised. Fees have not been taken into account when determining historical performance
figures and the analysis has been determined without leverage, given the leverage is an additional feature that can
be utilised by an investor if they so choose. The key outcomes of the Performance Analytics are:

Since inception in November 2005, BlueChip20, based on the model portfolio, has performed largely in line
with the market. The difference in performance can be attributed to the cash holding maintained by the
Manager.

The S&P/ASX 20 Accumulation Index, which BlueChip20 tracks, returned 6.42% per annum from November
2005 to July 2010, with volatility, as calculated by the standard deviation, of 15.68%. The volatility of
BlueChip20 was marginally lower than that of the index. We attribute this to the cash allocation.

Since BlueChip20 inception, the S&P/ASX 20 Index has changed the underlying stocks on four occasions. We
expect changes to the index to continue to be infrequent in the future.
dd

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 September 2010
Historical Performance
BlueChip20 was established in November 2005. Figure 1 compares the historical performance of the BlueChip20
portfolio with that of the S&P/ASX 20 Accumulation Index, since inception. BlueChip20 maintains a cash holding;
therefore, in a falling market may slightly outperform the market, whereas in a rising market may slightly
underperform the market. Fees have not been included in the historical performance analysis of BlueChip20.

Figure 1. Monthly Returns – BlueChip20 vs. S&P/ASX 20 Accumulation Index since inception

10.00%

8.00%

6.00%

4.00%

2.00%

0.00%
Jun-06

Jun-07

Jun-08

Jun-09

Jun-10
Dec-05

Mar-06

Sep-06

Dec-06

Mar-07

Sep-07

Dec-07

Mar-08

Sep-08

Dec-08

Mar-09

Sep-09

Dec-09

Mar-10
-2.00%

-4.00%

-6.00%

-8.00%

-10.00%

-12.00%

S&P/ASX 20 Accum Index BlueChip20

Source: Independent Investment Research Pty Ltd/BlackRock Investment Management (Australia) Limited

Figure 2. Monthly Returns – BlueChip20 vs. S&P/ASX 20 Accumulation Index since inception
(November 2005 to July 2010)

BlueChip20 S&P/ASX 20 Accumulation Index

Return (% pa)
1 yr 11.34 11.74
3 yr -1.18 -1.21
Since Inception 6.33 6.42
Risk (%)
Std Dev (since inception) 15.33 15.68
Tracking Error 0.47

Source: Independent Investment Research Pty Ltd/BlackRock Investment Management (Australia) Limited

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 September 2010

9. S&P/ASX 20 Index Constituents

As at 2 September 2010, the constituents of the S&P/ASX 20 Index — and therefore of the BlueChip20 model
portfolio — are listed in Figure 3, along with the index weightings and sectors. We note that the index is comprised
primarily of stocks from the Materials and Financials sectors, with 60% of the Index constituents operating in these
sectors. Furthermore the top five constituents account for over 50% of the Index.

Figure 3: S&P/ASX 20 Index Constituents as at 2 September 2010

Stock Code Company Name Sector Weighting

(%)
AMP AMP Limited Financials 1.52
ANZ Australia & New Zealand Banking Group Limited Financials 8.43

BHP BHP Billiton Limited Materials 18.130

BXB Brambles Limited Industrials 1.21

CBA Commonwealth Bank of Australia Financials 11.340

CSL CSL Limited Health Care 2.73

FGL Foster’s Group Limited Consumer Staples 1.69

MQG Macquarie Group Limited Financials 1.87
NAB National Australia Bank Limited Financials 7.22

NCM Newcrest Mining Limited Materials 4.13

ORG Origin Energy Ltd Energy 1.95

QBE QBE Insurance Group Limited Financials 2.47

RIO Rio Tinto Limited Materials 4.46

SUN Suncorp-Metway Limited Financials 1.55

TLS Telstra Corporation Limited Telco Services 4.44

WBC Westpac Banking Corporation Financials 9.49

WDC Westfield Group Financials 3.84
WES Wesfarmers Limited Consumer Staples 5.40

WOW Woolworths Limited Consumer Staples 5.00

WPL Woodside Petroleum Limited Energy 3.13

Source: IRESS

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 September 2010

10. Appendix – Ratings Process

Independent Investment Research Pty Ltd “IIR” rating system.
IIR has developed a framework for rating investment product offerings in Australia. Our review process gives
consideration to a broad number of qualitative and quantitative factors. Essentially, the evaluation process includes
the following key factors: product management and underlying portfolio construction; investment management,
product structure, risk management, experience and performance; fees, risks and likely outcomes.

GRAPHS SCORE

Highly Recommended 83 and above

This is the highest rating provided by IIR, indicating this is a best of breed product that
has exceeded the requirements of our review process across a number of key
evaluation parameters and achieved exceptionally high scores in a number of
categories. The product provides a highly attractive risk/return trade-off. The Fund is
likely effectively to apply industry best practice to manage endogenous risk factors,
and, to the extent that it can, exogenous risk factors.

Recommended 75-82
This rating indicates that IIR believes this is a superior grade product that has exceeded
the requirements of our review process across a number of key evaluation parameters
and achieved exceptionally high scores in a number of categories. In addition, the
product rates highly on one or two attributes in our key criteria. It has an above-
average risk/return trade-off and should be able consistently to generate above average
risk-adjusted returns in line with stated investment objectives. The Fund should be in a
position effectively to manage endogenous risk factors, and, to the extent that it can,
exogenous risk factors. This should result in returns that reflect the expected level of
risk.

Investment Grade 60-74

This rating indicates that IIR believes this is an above-average grade product that has
exceeded the minimum requirements of our review process across a number of key
evaluation parameters. It has an above-average risk/return trade-off and should be
able to consistently generate above-average risk adjusted returns in line with stated
investment objectives.

Speculative 40-59
This rating indicates that IIR believes this is a suitable product that has met the
aggregate requirements of our review process across a number of key evaluation
criteria. The product provides some unique diversification opportunities, but may not
stand apart from its peers. It has an acceptable risk/return trade-off and should
generate risk adjusted returns in line with stated investment objectives. However,
concerns over one or more features mean that it may not be suitable for most
investors.

Not recommended 39 and below

This rating indicates that IIR believes that despite the product’s merits and attributes, it
has failed to meet the minimum aggregate requirements of our review process across a
number of key evaluation parameters. While this is a product below the minimum rating
to be considered Investment Grade, this does not mean the product is without merit.
Funds in this category are considered to be susceptible to high risks that are not
reflected by the projected return. Performance volatility, particularly on the down-side,
is likely.

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