ARC FUNDS LIMITED — Proxy Solicitation & Information Statement 2009

Jun 11, 2009

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DESPATCH OF LETTER TO SHAREHOLDERS OF FIRST OPPORTUNITY FUND

Tidewater Investments Limited, through its wholly owned subsidiary, Loftus Lane Investments Pty. Limited (“ Loftus Lane ”) has today dispatched important correspondence to shareholders of First Opportunity Fund Limited (“ FOF ”) in relation to the forthcoming general meeting (“ Meeting ”) of shareholders to be held on 3 July 2009 at 9am.

Loftus Lane’s seven page analysis:

• highlights the unique conflict between employees and Directors of Investec Bank (Australia) Limited (“ Investec ”) personally owning over 30% of FOF shares, yet the manager, a controlled entity of Investec, or Investec itself, have no shareholdings;

• examines the disclosure of FOF and its corporate governance practice;

• shows how FOF currently resides in a peer group which trades at a significant discount to net tangible asset backing;

• demonstrates how a capital return of $0.35 per share would enhance the return to investors from a “shell” transaction, noting that the time value of money is eroding investor returns; and

• explains what Loftus Lane would do if certain of the Meeting resolutions are successfully passed, notably the appointment of one of its own Directors, Andrew Brown, to the board of FOF.

Loftus Lane hopes that whatever an individual shareholder’s viewpoints, the analysis will assist in their deliberation of the matters for decision at the Meeting, and encourage all FOF shareholders to exercise their voting rights in person or by proxy.

For further information:

Andrew Brown (02) 8258 0011 / 0418 215 255

Tidewater Investments Limited ABN 52 001 746 710

phone: (02) 8258 0000 fax: (02) 9230 0922 admin@tidewater.com.au

Level 4, 34 Hunter Street SYDNEY NSW 2000 GPO Box 4870 SYDNEY NSW 2001

LOFTUS LANE INVESTMENTS PTY. LIMITED ACN 074 088 636 ABN 34 074 088 636

Dear First Opportunity Fund Shareholder,

It’s time the board of First Opportunity Fund Limited joined the Australian Government and gave you a stimulus package – some of your money back.

It’s time for you to give the board of First Opportunity Fund Limited a stimulus package – a new Director and an injection of life.

You’ll have recently received a Notice of General Meeting, Explanatory Notes and Proxy Form (together Notice ) relating to a general meeting of shareholders of First Opportunity Fund Limited ( FOF or the Company ) scheduled for Friday 3[rd] July 2009 at 9.00am.

The meeting has been requisitioned by Loftus Lane Investments Pty. Limited ( Loftus Lane ), the Company’s largest shareholder, who owns some 20.47% of FOF’s shares.

Upon reading the Notice, you’ll probably perceive that the board of Directors of the Company ( Board ) seek to portray Loftus Lane as a nuisance creating opportunist, with no future plan or vision for the Company, seeking only to strip a substantial part of the cash assets from FOF. In our view, this is an extremely disappointing response from an experienced Board, who fail to positively address any of the arguments raised by Loftus Lane, and mainly engage in derogatory commentary in relation to a Loftus Lane Director, Andrew Brown.

Since the rules pertaining to the Notice restrict Loftus Lane to a one thousand word commentary on its reasons behind requisitioning a meeting, we felt it worthwhile to provide a more fulsome disclosure of our issues with FOF’s board and its manager, Investec Wentworth Private Equity Limited ( IWPEL or the Manager ), a controlled entity of Investec Bank (Australia) Limited ( Investec ). A more fulsome disclosure than they have every given you on FOF’s investments.

We also hope to answer some of the negative commentary in respect of Tidewater Investments Limited ( Tidewater ), the parent company of Loftus Lane, and also the 86.4% shareholder of Equities and Freeholds Limited ( EQF ).

If Resolution 1 (approval of the capital return) is approved by shareholders, and if Andrew Brown is successfully elected to the FOF Board (Resolution 7), he will:

• Ensure the Board carry out the procedure to return $0.35 of your money back to you ;

• Instigate a more robust process to monetise and return shares or cash to FOF shareholders of the three assets in the wine industry – Andrew Brown is a member of two other boards of wine related companies; and

• Ensure the board investigate more widely the potential for the downsized FOF to be used as a corporate “shell”.

Level 4, 34 Hunter Street SYDNEY NSW 2000 phone: (02) 8258 0000 GPO Box 4870 SYDNEY NSW 2001 fax: (02) 9230 0922 admin@tidewater.com.au

LOFTUS LANE INVESTMENTS PTY. LIMITED ACN 074 088 636 ABN 34 074 088 636

We go into some detail in this letter as to why time is important in performing these tasks, and why the Board’s apparent strategy of using FOF as a corporate shell doesn’t rely on how much money is in the FOF kitty. We also note that corporate governance at FOF isn’t as good as it should be, and that it’s about time another non-Investec person was installed as a Director.

Our comments fall into six main areas:

1. Refuting the allegation that Andrew Brown is wasting shareholders money for a second time in a matter of months;

2. Pointing out the clear conflict of interest which is evident from the structure of the FOF Board, ownership of Manager and personal shareholdings of Investec executives, but which the FOF Board pretend not to understand;

3. Illustrating the abysmal disclosure of FOF and poor corporate governance;

4. Highlighting the fruitless nature of the current structure;

5. Show how a capital return would enhance the return to investors from a shell transaction; and

6. In conclusion, explain what Loftus Lane would do if certain of the resolutions are successful.

1. ANDREW BROWN IS NOT WASTING SHAREHOLDERS’ MONEY

On 2 October 2008, EQF, a company of which Andrew Brown is Chairman, announced its intention to make a scrip based takeover offer for FOF ( Proposal ). EQF is 86.4% controlled by Tidewater, an ASX listed company which is also the parent company of Loftus Lane. Loftus Lane is not owned or controlled by EQF, and their activities are independent of each other, despite having the same ultimate controller.

EQF’s bona fide takeover intentions sought to offer FOF shareholders an exposure to a company, using debt and equity to invest in listed investment entities mainly in the equity and property area – a totally different investment mandate to that of FOF . The rapid decline in equity markets from that period onwards, not only saw reduced values of the underlying assets of these investment companies, but an unexpected and hitherto unseen widening in the pricing of their listed securities relative to NTA. As a consequence, EQF’s portfolio declined in value significantly in a short period of time; EQF prudently took steps to repay margin loans partially funding its exposures. On 10 November 2009, after a 14% decline in the S&P/ASX All Ordinaries index in October, the Directors of EQF withdrew their Proposal, noting that circumstances existed that were unknown and could not reasonably have been expected to be known of and that after the Proposal, a change in circumstances occurred that was not caused, directly or indirectly, by EQF.

The sum total of FOF’s required response to the Proposal was a small number of emails and phone calls to Andrew Brown and a short release to ASX. No Bidders Statement was lodged with ASIC or FOF by EQF and hence no Target’s Statement response was required. Negligible expense would have been required to respond to EQF’s Proposal.

LOFTUS LANE INVESTMENTS PTY. LIMITED ACN 074 088 636 ABN 34 074 088 636

On 17 April 2009, Tidewater wrote to FOF, inter alia , requesting that FOF more proactively manage its capital, and contemplate a capital return, and asked that a public announcement be made by 1[st] May 2009. A reply to this letter was received on 27 April 2009, which Loftus Lane and Tidewater found to be unsatisfactory.

Loftus Lane and Andrew Brown are now merely doing what the Directors do not wish to do, which is to democratically canvass all of the share register – as opposed to merely those shareholders who are employees or Directors of Investec – regarding the future direction of their company.

2. THERE IS SIGNIFICANT POTENTIAL FOR A CONFLICT OF INTEREST

On 22 July 2005, shareholders of FOF voted to terminate the management agreement for the Company with First Investment Corporation Limited (“ FICL ”), and initiate a new agreement with IWPEL, since Messrs. Brett and Chonowitz, who were the beneficial owners of FICL, were also executives of Investec or IWPEL. As part of this approval process, a further company owned by Messrs. Brett and Chonowitz were issued with 2,000,000 options exercisable at $0.60/share, which expire on 22 July 2010. Messrs Brett and Chonowitz are Directors of FOF.

As a result of this change, FOF now has a peculiar structure in that three of its Directors are executives or Directors of its Manager, but equity in FOF – amounting to 2,029,426 ordinary shares and 2,000,000 options exercisable at $0.60 before 22 July 2010 - is held by these individuals on a personal basis, and not by the Manager or its controller, Investec. In addition, we estimate several other Directors and executives of Investec hold a relevant interest in an additional 1,043,759 shares of FOF.

There are several ASX listed structures with external managers, but none of which Loftus Lane is aware, where the external manager has no relevant interest in the listed security, but the executives and colleagues of the external manager DO hold an approximate 30% interest in the listed structure itself. This clearly provides scope for a potential but significant conflict of interest between the executives and the Manager in respect of potential future transactions, but also time and expense allocation.

3. CORPORATE GOVERNANCE AND DISCLOSURE SHOULD BE IMPROVED

FOF’s historic annual reports have provided abysmal detail and disclosure of the invested portion of Company’s assets. Shareholder’s insights into the value of over $2.8million of equity and loan funds in associated companies are restricted to a few sentences of prose, minimal comparable statistics and notes to the accounts which group together the three separate investments under “investments accounted for using the equity method” The Board make no attempt to go beyond what is statutorily required and provide little insight with which investors can make their own judgments as to the likely value of the associate investments. Given that the investee companies are of a “Pty. Limited” nature, there is no benefit to be gained from accessing the ASIC database. This scanty disclosure is hardly befitting of individuals carrying out a fiduciary function.

LOFTUS LANE INVESTMENTS PTY. LIMITED ACN 074 088 636 ABN 34 074 088 636

Loftus Lane has previously noted that the announcement by the Company on 30 April 2009 of its intention to proceed with an on market buy-back of up to 10% of its shares. Loftus Lane has also noted the impact of ASX Listing Rule 7.29, which provides that a company may only purchase shares under an on-market buy-back if transactions in the company’s shares were recorded on ASX on at least five days in the three months before it buys back the shares. The Company’s shares clearly did not satisfy this criterion on 30 April 2009 or 15 May 2009, being the date upon which an on-market buy-back could commence.

On 18 May 2009 and 1 June 2009, the Company disclosed that a Director, John Murphy had purchased a relevant interest in a total of 13,043 shares on 8[th] ,13[th] , 26[th] and 28[th] May at prices of $0.35, $0.40, $0.44 and $0.44 respectively. Loftus Lane notes that it is highly unusual behaviour for a Director of an ASX listed company to be purchasing securities ahead of the commencement of an on-market buy-back, or as a Director of a company which was then capable of buying back its own securities. More pertinently, this is the first on-market purchase of securities by relevant interests of Mr. Murphy – or for that matter any FOF Director – since February 2003 .

Shareholders are entitled to ask why Mr. Murphy suddenly found the Company’s securities so attractive, and more pointedly, the procedures enacted by the FOF Board which enabled Mr. Murphy’s interests to transact in securities ahead of the Company’s own buy back.

These types of behavior illustrate quite clearly that the construction of the FOF Board, three quarters comprised of Directors of Investec/IWPEL, passes no independence test whatever, and places significant pressure on the independent chair, Dr. John Keniry. Removing two of the current Directors, as proposed by Resolutions 4, 5 and possibly 6, and adding Andrew Brown to the FOF Board would reduce representatives of the Manager to a minority and significantly enhance corporate governance.

4. THE CURRENT STRUCTURE IS UNLIKELY TO ADD VALUE

FOF’s current structure of being a private equity investor is clearly unappreciated by investors. Unfortunately, the same is true for other ASX listed vehicles which invest in private equity funds or direct transactions, irrespective of the credibility of the manager.

This can be seen in the following table which shows three other private equity funds listed on ASX trade at a massive average 55% discount to last disclosed NTA/share:

Company	Share price1	Last stated NTA/share before tax2	Discount/Premium
Allco EquityPartners	$2.61	$4.90	46.7%
ING Private Equity	$0.27	$0.77	64.9%
Souls Private Equity	$0.083	$0.18	53.9%

• 1: as at 28/5/2009

• 2: as at 30/4/2009

Source: ASX releases compiled by Tidewater

LOFTUS LANE INVESTMENTS PTY. LIMITED ACN 074 088 636 ABN 34 074 088 636

By implication, it is unlikely that a continuation of FOF and IWPEL strategy of using FOF as a private equity vehicle would yield any degree of recognition by listed equity investors. Indeed, On 3 April 2009, Allco Equity Partners ( AEP ) announced a capital return of $0.65/share subject to shareholder and regulatory approval, the suspension of new investments and the opportunity for shareholders to effectively wind up (or continue) AEP should it trade at a discount to NTA of 15% or more in two years time.

5. A CAPITAL RETURN ENHANCES THE RETURN OF A “SHELL” TRANSACTION

Given the write-off of $185,000 in due diligence costs in the 2008 financial year, rather than act as a listed private equity fund, it would appear that the strategy of the Board of FOF is to make large scale investments such as acquiring a single business. Given the current capital base, this would not be possible without a significant equity raising, swamping existing shareholders. In such a situation, it is in current shareholders interests for the raising price to be as high as practical - in effect, using FOF as a “shell” vehicle.

There is a clear ceiling to the level of “shell premium” which can be extracted from a business seeking to be listed on ASX; there is an identifiable and highly transparent market for “shell” companies, which can be best observed through the transaction prices paid to remove distressed, listed companies from external administration. These transactions generally operate through an investor group loaning money to the distressed holding company to make a payment to external creditors under an agreement, and then recouping their loan funds through the issue of equity. These methods are clearly open to any company – particularly one of substance – who wishes to effect an ASX listing through this legitimate back-door operation.

Loftus Lane has compiled the following abbreviated table of recent ASX listed companies which have emerged from a Deed of Company Administration (DOCA) or made payments to a Creditors Trust through this methodology:

Company (current name)	Date of shareholder meeting	Payment to creditors to settle DOCA or to creditors trust1
OBJLimited	March 2004	$200,000
WCP Resources	March 2005	$600,000
Reel Time Media	October 2005	$700,000
RMG Limited	March 2006	$725,000
Resource Star Limited	August 2006	$950,000
Signature Metals Limited	August 2006	$600,000
WAG Limited	December 2006	$675,000
Croesus MiningLimited	September 2007	$800,000
TPL Corporation	April 2008	$450,000
Southern Pacific Petroleum	May2008	$775,000
Reel Time Media(proposed)	April 2009	$250,000
AVERAGE		$611,364

1: excluding meeting costs and certain payments to administrator. Source: ASX releases compiled by Tidewater

LOFTUS LANE INVESTMENTS PTY. LIMITED ACN 074 088 636 ABN 34 074 088 636

On average these eleven transactions have resulted in the payment of just over $611,000 to creditors for the listed shell – equivalent to 6.0 cents per FOF share.

Most shell companies maintain modest levels of cash, sufficient to cover administrative expenses for a sufficient period for the company to find an attractive business to acquire. In the main, these cash balances tend to be in the $1m - $2million area, rather than the $4.4million disclosed by FOF as at 31 December 2008.

Merely taking FOF’s cash balance, the effect of a shell transaction at an average value of $611,000 equates to a return of only 8.5% on FOF’s net tangible asset base, or 13.9% on its cash assets only. Repaying $3.5million of capital would provide for far higher proportional returns of 16.8% and 67.9% respectively, whilst giving investors the opportunity to use around half the attributable value of their investment in FOF.

Moreover, the longer that FOF’s Board pontificate over investments and allow the Manager to adopt a passive stance, the returns illustrated above are significantly reduced by the time value of money. In this context, Loftus Lane firmly believes that the Board’s attempts to execute a transaction for FOF in the manner which appears to have been undertaken to date, are not dependent upon retaining the current levels of cash within the Company.

Furthermore, back-door “shell” type listings require a logic for this type of methodology in preference to a standard Initial Public Offering prospectus. Often this logic lays in the speculative nature of the enterprise being vended into the shell company, for example, resource exploration, which may provide the shell investor with significant upside.

Given the highly regulated nature of Investec and its subsidiary IWPEL, it is unlikely that Investec would countenance the type of potential reputational risk and damage from the type of business usually listed through a shell or back-door structure.

6. CONCLUSION – LOFTUS LANE’S ALTERNATIVE STRATEGY

Whilst detailed, we hope this letter has convinced you that:

• Loftus Lane, Andrew Brown and Tidewater have the best interest of ALL shareholders at heart and have a genuine strategy to enhance value to shareholders;

• there are significant conflicts of interest within the current structure of FOF which are undisclosed and may act as a deterrent to investment return;

• corporate governance practice and disclosure must be improved significantly;

• the current structure of FOF, by reference to comparable vehicles will not add value to shareholders;

• an immediate capital return will enhance the investment returns to shareholders from a back-door listing transaction; and

• IWPEL are probably not the appropriate people to effect such a transaction.

LOFTUS LANE INVESTMENTS PTY. LIMITED ACN 074 088 636 ABN 34 074 088 636

We hope you will support our efforts in stimulating your company, First Opportunity Fund, into life, and closing the massive discount between occasionally traded prices on ASX and the underlying value of the Company’s assets.

If you agree with our views, either:

A: VOTE “ FOR ” TO ALL RESOLUTIONS

B: APPOINT “ ANDREW BROWN ” of “ LEVEL 4, 34 HUNTER STREET, SYDNEY NSW 2000 ” as your proxy

PLEASE SEND YOUR PROXIES DIRECTLY TO THE ADDRESS/FAX ON THE PROXY FORM, BUT A QUICK EMAIL TO andrew.brown@tidewater.com.au TELLING US YOUR SHAREHOLDING AND THAT YOU HAVE APPOINTED ANDREW BROWN AS PROXY WOULD BE APPRECIATED.

If you wish to discuss any aspect of this letter, please do not hesitate to call Andrew Brown on (02) 8258 0011. Please appreciate that we cannot give specific personal financial advice. Many thanks for your support.

Yours sincerely,

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Andrew Brown Director

5 June 2009