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Byron Investments Pty Ltd

Technology Fund

Managed By Jaime Plaza Nathan Zhu Henk De Bruin Johnny Shin

Contents Page

Executive Summary First Stocks Selection 20 Stocks Second Stocks Selection 8 Stocks Final Portfolio Insurance Offered Appendix

Executive Summary

Byron Investments Pty Ltd is a major investments bank with an exceptional base of staff who always seeks to outperform the competition. We strive to always put our clients needs before our own to ensure that your success if our success.

The following report is based on our Technology Fund. A sector based portfolio sorely concentrated on investments within technology stocks in the S&P 500. This portfolio is a value based portfolio, meaning that we look for stocks which are undervalued, underpriced and believe that market correction will ensure the stocks price rise. We believe that technology stocks show significant growth and value which suit our needs. However, we understand that it comes with a risk so we have decided to diversify our stocks within the Healthcare sector as they show enough correlation to be deemed independent of each other.

Our teams of managers for this fund are all highly qualified and will be doing all they can to ensure the highest returns at the lowest possible risk.

Byron Investments Pty Ltd Fact Sheet:

October 2010

Fund Overview:

Product Name: Inception Date: Fund Status: Distribution Frequency: Fund Size: Management Fee: Initial Fee: Asset Class: Investment Timeframe: Risk Category:

Byron Tech Fund November 2010 Closed Quarterly AUS$20 Million 1.75% (as at Oct 2010) 0% S&P 500 Tech Shares 5+ Years Risk Averse

First Selection Process Our initial stock selection process was done using a stock screener provided by Yahoo! Finance (see Appendix A for full details) The stocks were selected based on the following constraints: Index Sector P/E Current Ratio Return on Equity Earnings Growth Past 5 Years = = <= >= >= >= S&P 500 Technology (or Healthcare) 25% 1.00 10% 10%

From these we selected the top 15 market cap stocks from the Technology sector and the top 5 market cap stocks from the Healthcare sector. The results were: Technology: Apple Inc. (AAPL Microsoft Corp. (MSFT) International Business Machines (IBM) Google Inc. (GOOG) Oracle Corp. (ORCL) Hewlett Packard (HPQ) QUALCOMM Inc. (QCOM) Corning Inc. (GLW) First Solar Inc. (FSLR) CA Inc. (CA) Sandisk Corp. (SNDK) Altera Corp. (ALTR) Amphenol Corp. (APH) BMC Software Inc. (BMC) Western Digital Corp. (WDC)

Healthcare: Abbot Labs. (ABT) Bristol-Myers Squibb (BMY) Eli Lilly and Co. (LLY) Medtronic Inc. (MDT) Gilead Sciences (GILD)

Second Selection Process: Our second selection process was more involved, we only wish to maintain a maximum of 8 stocks within our portfolio so we reduced our 20 stocks down to just 8 using a combination of Fundamental, Quantitative and Financial Analysis. Our results are briefly listed below, with a reason why we have or have not included them into our stock portfolio.

Hewlett Packard Hewlett Packard (HP) is currently going through a price correction to lower price in result of forced resignation of Chief Executive Officer, Mark Hurd. Since this event, share price of HP dropped from 52 weeks high of $47.65 (2nd Aug 2010) to one year low of $38.56 (26th Aug 2010). That is 23.57% price drop in just 3 weeks since the announcement. In another hand, new CEO, Leo Apotheker is in line to be appointed; he has more experience in software engineering industry and business prospect in variety of areas. HP has been heavily focused in consumer products industry past many years. However the new appointed CEO, Leo Apotheker has brought software business in to attention, in order to create constant growth of its future earnings and new business model to support it. HP has constantly proved to outperform in revenue growth to the main competitor IBM year to year basis. Thus, HP is currently representing strong market outlook with development of new business model and offers significantly lowered entry point of share price due to their internal issues but with no real impact on actual revenue.

Qualcomm Incorporated (market cap of 70.60billion) Qualcomm Incorporated (telecommunication industry) offers no significant value to purchase as it has relatively high P/E ratio and lower gross margin rate compare to their many existing competitors. Corning Incorporation (Market cap of 28.047billion) Corning Incorporation (communication equipment industry) has been excluded due to their relatively small market cap structure. ??? not sure cant find much reason to exclude them. First Solar (Market cap of 12.71 billion)

First Solar (Semiconductor Specialized industry) holds good potential for its future as solar panel has started to attract attention from the market. However, current consumer demand is not large enough to sustain its constant revenue growth. BETA of 1.69 proves the risky volatility. Symantec Corporation (market cap of 12.16 billion) Symantec Corporation (Security & Software industry) has been excluded due to its low Return on Asset and Return on Equity figures. Also, Year over Year (as of 02/07/2010) Quarterly growth figure shown were 0.10%, which is not even close comparing to other competitors.

APPLE Apples sales have been increasing steadily in the last few years from $13391 millions in 2005 to $42905 millions in 2009 (Morningstar.com) and its net income increased from $1335 M to $8235 M ib that period. Return on Equity has been increasing from 21.29 in 2005 to 35.47 it his year. Its P/E ratio is 21.3 at the moment, which is slightly higher than the industry average (21.2). It has decreased from a 38.8 in 2005. This decrease in the P/E ratio happened because of the steady increase in earnings per share from 1.65 to 9.22 in that same period. Its price is high. This has happened because of the Ipod, Iphone and Ipad as well as the increasing sales of its Mac computers. Even though the price of Apples stock is high, it could be a good purchase. Tech analysts like John Paczkowski say that consumers bought the first Ipad as a luxury, however it is quickly becoming a need. (digital daily, allthingsd.com). HE further believes that competitors will have a hard time trying to come with new products to compete with Apple. The company has had a strong performance in the last few years and has been increasing its share of the market. Moreover they have been increasing their expenditures on research and development. Thus, this, together with the Ipad becoming a need, should be a good reason why Apples stock price could increase in the future therefore, we choose this company for our portfolio. Articles: Analysts: Ipad a want, then a need. October 2, 2010. Ipads competition to Fall Flat. October 5, 2010. GOOGLE According to Cromwell Shubarth, Google has made more than 20 acquisitions this year (2010). Joe Magyer states that Google could be both a growth and a value investment.

Their strategy of acquiring several small companies works because by doing so, they get to experiment and have cheap failures where they shut down the project when it is cheap to do so. On the other hand, they get huge returns with the successful projects. Their Android phone has a strong share f the market as well. Google has experienced growth in sales from $6139 Millions in 2005 to $23651 M in 2009 together with net income increasing from $1465 M to $6520 M in the same period. Its P/E ratio, of 28.1 even though high compared to the 14.7 S&P 500 average P/E ratios, is lower than its 38.2 industry average. Their P/E has steadily decreased from 131.6 in 2004 and it is expected to decrease for the next year. This fall in P/E is due to their steady increase in earnings per share from 5.31 in 2005 to 20.62 in 2009. Googles great performance in the last five years show that they are a good company. Moreover, their numerous acquisitions makes us think that the price of their stock will increase in the future making it a good option for our portfolio. Figures: Morningstar.com MICROSOFT Microsoft has had a strong competition in the last few years due to the rise of Apple. Its P/E has been decreasing steadily in the last decade and now it is lower than the average of other companies in the industry and the S&P 500. Moreover, their D/E ratio has increased from not using long term debt from 2000 to 2008, to a ratio of 0.11. According to Bill Rigby, Microsoft has authorized debt to raise their dividends and return cash to their shareholders who hav e seen microsofts stagnant shareprice which is in the same level as it was eight years ago. This sudden use of debt , together with their loss of market share to apple, makes Microsoft not as attractive. According to Bill Rigby, Reuters, Microsoft is about to launch its windows Phone 7 Software to try and compete in the phone market. However, analysts say that until now, this product does not include any new features that would distinguish it from Iphone and Android. As a result of a stagnant stock price and strong competitors, Microsofts future does not seem to attractive, thus we prefer not to include it in our portfolio. Article: Microsoft Hopes to bury Iphone and Android. IBM Even though IBM has had increases in revenue and net profit and has been a strong company that has been in the market for decades, we prefere not to use it because of

its high use of debt. Its D/E ratio was 0.47 in 2005 and rose to 1 this year. As a result, we prefer not to include companies that use such high amounts of debt in our portfolio. ORACLE Oracles revenues and net profits have increased from $14380M to $26820M and from $3381M to $6135M respectively. Its P/E ratio is 21.7 and is expected to drop to 12.5 under the S&P500 average. Its earnings per share have almost doubled since 2005. This shows a great performance in the last 5 years. Moreover, according to Bill Rigby, Oracle has expanded its markets from business software database systems to server hardwares by their last acquisition of Sun Microsystems. This Purchase expansion can be followed by an increase in sales and profits wich could then turn into higher stock prices. As a result, we think that Oracle is a good and safe company to invest in, with a potential to increase in stock price, thus, a good stock to include in our portfolio.

Oracle profit beats Street forecasts, stock jumps, Bill Rigby, Reuters.

SanDisk Corporation (SNDK) SanDisk operates in the semiconductor memory chips industry. It is a leading company in flash memory cards, which are used in a wide variety of consumer electronic products such as laptop computers, mobile phone, digital cameras, etc. They have been profitable each year since 2002, with exception of 2008 due to temporary decrease in revenue and high investment activities. Apart from retail sales and direct sales to other electronic products manufacturers, SNDK also generates royalty revenue through their patented intellectual property.

High revenue growth almost doubled in 5 years, from 2.3b in 2005 to 4.4b until last quarter 2010. Revenue is expected to grow at higher rates since the introduction of tablet computers in 2010. Demand for flash chips will increase 370% by 2014 and SNDK will cover a big part of this boon.

Stock price decreased around 25% ($12) in August so it could be underpriced at the moment.

Good return on equity 27.10% compared to industry -59.8% and also good profit margin 23.94% until last quarter.

The company has a low financial leverage, D/E ratio of 0.21. Very high current ratio of 3.9

52-week change of 84.32% (compared to benchmarked index 11.81%).

Amphenol Corporation (APH) High technology connector systems leading company. Design, manufacture and markets electrical, electronic, fibre optic, coaxial cable and other high tech connectors used in communications, military, industrial and other markets. Sometimes they produce specific designs according to customers needs, creating good business relationships.

Share price increased during the first week of September (from $40 to $46 approximately), after the quarterly report was released. It shows a good sales increase in all their product lines, strong cash flow position which influenced a credit rating improvement and a gross margin of 32.7%. It may be than the price already reflects all new information. Demand still not strong as U.S. and other economies are still recovering from financial crisis at a slow pace.

Very good return on equity of 22.9% and net profit margin of 12.7% compared to industry 1.8% and 0.7%.

Although APH had a high D/E ratio until the early 2000s, the financial leverage has been decreasing significantly to an actual level 0.40. The industry average is 1.5 today. Current ratio is 2.94.

Good growth through acquisition activities in target markets to enhance its products range. Approximately $280 million in acquisition were invested in 2009.

52-week change of 34.03%, compared to S&P500 52-week change of 9.28%.

Altera Corporation (ALTR) Designs and sells programmable logic device (PLD) chips that are used in data processing, industrial, consumer and automotive markets. The chip manufacture process is outsourced. PLD market is practically a duopoly where ALTR hold the 2nd biggest largest share after XLNX; however ALTR has gained ground lately.

Revenue growth was a bit slow in the last years, however 2010 revenue is growing substantially (68% TTM. Telecommunications and wireless markets fast growing driven by 3G wireless are pushing sales up at a higher pace.

Balance sheet shows lots of cash ($1,547 million) and total current liabilities of just $490 million.

High return on equity of 39% TTM and high profit margin of 32.4% Moderate financial leverage, D/E ratio of 0.3 and very high liquidity with a current ratio of 4.16

52-week change of 46.96% compared with benchmark S&P500 52-week change of 9.28%.

BMC Software Inc. (BMC) Provide IT solutions to businesses. Revenue growth is a bit small, from above 1.4 billion in 2004 to 1.9 billion in 2010 2nd quarter. They have won some important contracts in the last months, so a higher increase in revenue is expected for the following years.

Good profit margin and ROE of 21.67% and 33.62% respectively. Balance sheet reflects financial stability. Their credit rating has also been improved recently due to strong cash flows during last economic downturn. Current ratio of 1.42 and D/E ratio of 0.26

52-week change of 9.61%, similar to benchmark S&P500 of 9.28%

Waters Corporation (WAT) The main business is to provide analytical tools and instruments for industrial, pharmaceutical and biochemical customers.

D/E ratio 0.9, relatively high if we compare to industrys average of 0.4 Current ratio of 3.62

Good profit margin of 21.81% and high return on equity of 44.11% Revenue growth is quite slow.

52-week change of 25.94% (S&P500 index benchmark of 9.28%)

Share price increased about $10 to almost $71 in 5 weeks since late August. Higher Quarter 2 report and new business agreements that will increase demand pushed price up. Probable these gains are already reflected in the shares price.

Abbot Laboratories (ABT) Manly into pharmaceuticals as well as technology development for healthcare use. Equipment development includes diabetes and arthritis, as well as takeovers for smaller researched companies. Looking at the assets, the company has a lot of cash assets (8 billion). Whether or not that money is being used for takeovers or not, it seems like its not using the value of the company to its fullest potential. Steady growth of sales, from 25 billion to 30 billion in 2 years. Last 2 quarters performance hasnt been too good. Just had a major takeover, whether it affects it or not. Recent takeover of a large company that deals with heart conditions and equipment High profit margins of 16.07% Revenue per share of 21.38 High Liquidity, 1.35 Current Ratio + Roughly 4 Billion in Cash 52 Week Change of 5.5% (compared to benchmarked Index of 11.81%)

Bristol-Myers Squibb Company (BMY) A Global company dealing with bio-pharmaceutical products, dealing mostly with products to cure the major diseases such as HIV, heart failure, hepatitis etc After acquiring ZymoGenetics, at 84% above the market price, BMY shares grew close to 2 dollars that month. Significant increase of Net Income over the last few years, doubling its take from 2008 to 2009 Extremely high profit margin of 54% Very volatile, a 52 change of 22% as opposed to SP500s 11% Very strong liquidity, current ratio of 2.2 with about 7.5 billion cash in reserve

Eli Lilly and Company (LLY) Main business is to manufacture products to supply to world while still developing for mostly mental and neuroscience products. Pressuring issues with its products doing more harm then good Company losing patents on the drugs that accounted for 74% of their last year sales Trying to develop new drugs to save the company but not looking good due to the recent bout of bad press Trying to save revenue by cutting $1 billion in costs and sacking 5500 employees Placebo products for psychiatric Wont need to even look at the financials as wont be even considering this company

Medtronic Inc. Co (MDT) Sells device based therapies such as pacemakers, defibrillators and other diagnostic equipment. Steady decline of common stock over the last 6 months, dropping about 12 dollars so could very well be undervalued right now. 52 week change of -7% Profit

margin of about 22% High liquidity with current ratio of about 1.72 + $4 billion of cash reserves Slowly increasing net income Very strong asset base with low liabilities

Gilead Sciences (GILD) Steady decline of common stock over the last 6 months, dropping about 10 dollars so could very well be undervalued right now. Deals with developmental science for cures of life threatening diseases such as HIV, AIDS, Hep B etc Good profit margin of 38% 52 week change of -19%, down a lot Very high ROE of 50% Steady increase of net income, no major increases A lot of analysts to say strong buy or buy or hold. FDA warning on their manufacturing plants Joins a few other major international companies to find cure for AIDS.

Insurance: We will be offering 3 different insurance policies to ensure youre comfortable with your investment. We have taken the liberty to give you the options of insuring for 100%, 75% or 50% of the portfolios value. The costs associated with each option will be made available to you so that you can make the right decision.

Appendix

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