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International Share PortfolioQuarterly Report June 2017

Investment Portfolio June 2017

The Watershed International Share Portfolio is a separately managed account, or SMA, actively managed by Watershed Funds Management. SMAs are professionally managed portfolios of direct shares whereby the investor receives beneficial ownership of the underlying securities.

Investment Objective The objective of the Watershed International Share Portfolio is to provide attractive investment returns over the medium and long-term while reducing the risk of permanent capital loss. The Portfolio consists of investments in high-quality global businesses whose shares are listed on major global stock exchanges. The Portfolio aims to outperform the MSCI World Index (excluding Australia) over a rolling three-year period by 2 - 3% per annum.

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Financial 31.3%Technology 20.8%Industrial Goods 16.0%Healthcare 10.9%Consumer Retail 12.2%Consumer Staples 5.5%Cash 3.3%

Inception 4 January 2010Benchmark World Index (ex Aus)Authorised Investments Medium to Large Cap Listed International Shares

No Company name ASX Code

1 Wells Fargo WFC2 Berkshire Hathaway BRK-B3 Johnson & Johnson JNJ4 3M MMM

Portfolio structure

Sector Allocation

No. of Stocks 15—25Cash Allocation 0—20%Tracking Error 5—11% per annumInvestment Horizon At least 5 years

Key Portfolio Features

*Inception since January 2010

• Note The Portfolio is designed for investors who seek long term capital growth & portfolio diversification as well as having a longer-term investment horizon of at least five years and accept the risk of price fluctuations.

5 Microsoft MSFT6 General Electric GE7 Intel INTC

SoldProcter & Gamble (PG) on subdued outlook

Added Apple (AAPL) on positive outlook and valuation

• Measured in US Dollars, the MSCI World Index (excluding Australia) rose by 4.2% in the June quarter and by 18.2% for the 12 months ended June

• The Watershed International Share portfolio rose by 3.2% in the June quarter and rose by 18.8% for the 12 months to June, outperforming the index by 0.6%

• Measured in Australian Dollars to account for the effects of changes in the US$/A$ exchange rate, the MSCI World Index (excluding Australia) rose by 3.3% in the June quarter and rose by 13.5% for the 12 months ended June

• The Watershed International Share portfolio rose by 2.4% measured in A$ in the June quarter and returned 14.1% in A$ for the 12 months, outperforming the index by 0.5%.

Top Contributors Key DetractorsAlphabet Wells FargoAmazon Berkshire Hathaway Johnson & Johnson US BancorpNestle Intel3M Costco Boeing General Electric

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Portfolio Changes

Performance Summary

Performance Attribution for Month

Quarter in Review June 2017

Gross performance (%) 1m 3m 6m 1yr p.a. 3yr p.a. 5yr p.a Inception* p.a

WFM International Share Portfolio in US$ 1.6% 3.2% 7.6% 18.8% 9.6% 14.4% 15.2%

MSCI World Index (ex Aus) in US$ 0.3% 4.2% 10.7% 18.2% 5.4% 11.6% 9.2%

Relative Performance in US$ 1.3% (1.0%) (3.1%) 0.6% 4.2% 2.8% 6.0%

WFM International Share Portfolio in A$ (1.6%) 2.4% 1.0% 14.1% 16.4% 19.6% 16.5%

MSCI World Index (ex Aus) in A$ (2.9%) 3.3% 3.8% 13.5% 11.2% 16.3% 10.4%

Relative Performance in A$ 1.3% (1.0%) (2.8%) 0.5% 5.2% 3.3% 6.1%

Performance

• At its June meeting, the US Federal Reserve decided to raise the target range for the federal funds rate by 0.25% to 1.00%-1.25%. European Central Bank President Mario Draghi hinted recently that the ECB might start winding down its large monetary stimulus as the eurozone economy picks up speed, and similar signals were given by officials at the Bank of England and the Bank of Canada

• For the June quarter, the Watershed International Share portfolio underperformed due to its overweight position in financial stocks. Share prices of financial stocks were driven lopwer by a fall in long-term bond yields

• Strengthening corporate earnings, improving economies and continued support from central banks provided support for a broad-based rally over the last 12 months. The Watershed International Share portfolio performed strongly returning 18.8% in US dollars and 14.1% in Australian dollars.

• Global economic conditions are continuing to improve in 2017 although inflation has eased a little in most economies due to falling oil prices since the start of the year. Survey measures of business conditions in both the manufacturing and services sectors have improved since mid-2016 in a range of countries, and global consumer confidence has increased markedly to a high level. Unemployment rates in many major advanced economies are now at levels that can be associated with a build-up in wage pressures. Wage growth has been increasing gradually in the United States and Japan

• We believe the economic recovery in the United States is on a sustainable path and with the economy at full employment, the next phase of the recovery should be driven by wage growth and a consequential increase in consumer spending. We anticipate for economic conditions in Europe to continue improving aided by the accommodative monetary policies of the ECB

• Our investment strategy is to maintain an overweight to US Equities given the strength of the US economy but our intention is to increase our exposure to European businesses somewhat. In respect of US Equities, we are positive on US Banks given a rising interest rate environment (albeit gradually), which should allow them to expand their net interest margins over time, and on the technology sector with latest developments in virtual reality, cloud services, artificial intelligence, data analytics and robotics. We always have an interest to invest some funds in major industry disrupters and currently have investments in two of the major disrupters in the retail industry namely Amazon and Costco.

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Performance Commentary

Investment Environment

Quarter in Review June 2017