ARC FUNDS LIMITED — AGM Information 2012

Nov 28, 2012

MANAGING DIRECTOR’S ADDRESS TO THE ANNUAL GENERAL MEETING OF TIDEWATER INVESTMENTS LIMITED

THURSDAY 29 NOVEMBER 2012

In the final comments of last year’s managing Directors comments, I noted, in the nicest possible way, that it would be my preference not to be here this year. As you can see, I am.

In retrospect, over the past twelve months, the Company has not been as active as the board of Directors would have liked. Around this time last year, we finalised the acquisition of a majority holding in Continuation Investments Limited when we elected not to participate in an off market share buy-back put forward by the then controlling Directors. In February 2012, we were offered what we believed to be an attractive price by a group of unrelated investors and duly sold our 52.6% shareholding. Last year’s AGM also approved the divestment of our stake in Merricks Capital Special Opportunity Fund Limited.

Through much of the year, we were engaged in discussions and analysis of an opportunity to acquire another business within the financial services sector. In late August we announced that Tidewater and the third party had amicably terminated the negotiations and that the acquisition of the counterparty would not proceed.

Based on the sale of our agency vineyard funds management operation, which was running off anyway, it might appear as though Tidewater is rather moribund. I hope you will realise after today’s discussion that this is certainly not the case.

Whilst we are not likely to make any major strategic investments in the near future, we do have significant scope to take more passive exposures in both larger and smaller companies. We also have the means to take exposure to the broader markets and have opened a derivative trading account. In other words, we are still investors and have recently acquired two new small positions in listed companies, as well as instigating – and profitably closing – some minor derivatives positions. We expect to increase our exposures as the year progresses, when we believe individual securities and overall markets are more attractive than at present. We do have scope to short-sell exposure to various indices, and have done so to reasonably good effect to date.

Whilst there are always attractive individual securities, we have been extraordinarily cautious with respect to the overall investing environment. However you wish to look at it, none of us have seen this type of global arena in our professional lifetimes.

Government debt liabilities in the developed world measured relative to the size of the underlying economies are at record levels. The political will to tackle and pay down this debt seems to barely exist; neither does the acceptance of the most obvious means to solve the problems caused by an artificial European currency union where monetary but not fiscal policy are determined. The fact that significant chunks of developed world debt is held by developing world countries, with a degree of opacity regarding their internal economic and financial situations is quite unique.

Within the domestic domain, the level o uncertainty gripping investors is arguably at extreme levels. This is manifested by the shifts to yield based hybrid securities, often with minimal regard to the very small print of the encyclopaedic disclosure statements. These anxieties are compounded by low stock exchange trading volumes, blocked IPO pipelines (there have been only 31 resources IPO’s this year to date, raising a mere $240million, of which one was $75million alone) and extreme reactions to often mildly disappointing short term news. This turns into a vicious circle as these reactions to adverse surprises forces investors into a narrower class of securities where such negative outcomes appear unlikely. There is a new emerging class of “super company” where risk averse investors are happy to hide, irrespective of price. We are starting to trawl

more aggressively through the smaller and mid-sized areas of the ASX though are highly conscious that the pace of business transition through technology is extreme.

Our main focus remains on firm asset situations which are less susceptible to technological extinction. With equity markets around the globe – including Australia – having risen sharply from the first week of June 2012, despite the worsening short term earnings outlook and long term structural malaise, it is relatively hard to get too excited about positive equity exposures. The major counter-argument is, of course, cheap money and its ability to eventually buy financial assets.

So we have scope to make investments with existing cash (equity) and leverage facilities, which we will obviously use cautiously. We have significantly reduced the cost base of the company – the only fixed costs are significantly smaller Directors fees ($20k per annum for non-executives; only minor services costs, then the usual ASX, insurance, registry and audit fees).

We still retain some 13.75million shares in Adelaide Resources Limited (ARL) equivalent to about 7.3% of ARL’s capital. We have obviously been disappointed by ARL’s share price performance given its four discoveries in the past fifteen months on the Yorke Peninsula, and the inherent value of its other assets. After ARL’s recent placement and share purchase plan, the company is better positioned to enact an early 2013 program of significance on its two South Australian areas. As we noted at the ARL AGM on Tuesday, we expect to be more proactive at extracting value from what we believe is an enticing asset portfolio within ARL.

Your Directors have recently increased their shareholdings by purchasing a significant parcel of shares on market and also contributing via the SPP. This reflects our confidence that Tidewater is lean, can (colloquially) pay the rent, make some worthwhile investments, all the time whilst on the look-out for additional businesses which can drive our size towards a more commercial level.

We do continue to receive a number of propositions; with the recent dulling of investors’ ardour for the resources space, we are starting to receive higher quality enquiries. As we saw in 2012, it is impossible to put time frames on any potential acquisition transaction. We are thinking more “out of the box” in this respect and feel in the current environment that even our small quantum of permanent capital allied to an ASX listing has a genuine value. The task for the 2013 year is to better exploit it.