MAGELLAN FINANCIAL GROUP LIMITED — Proxy Solicitation & Information Statement 2012

Dec 20, 2012

21 December 2012

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ASX Market Announcements Australian Securities Exchange Limited Level 4, Exchange Centre 20 Bridge Street Sydney NSW 2000

MAGELLAN FINANCIALGROUP LIMITED (‘MFG’) NOTICE OF EXTRAORDINARY GENERAL MEETING IN-SPECIE DISTRIBUTION

MFG is pleased to attach a Notice of Extraordinary General Meeting and Explanatory Memorandum for a meeting of security holders to be held at 11:30am on Tuesday, 5 February 2013 in the Press Room, Radisson Blu Plaza Hotel, 27 O’Connell Street, Sydney, New South Wales.

These documents have been lodged today with the Australian Securities and Investments Commission and mailed to security holders.

Yours faithfully,

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Leo Quintana Legal Counsel & Company Secretary Magellan Financial Group Limited

ABN 59 108 437 592

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NOTICE OF EXTRAORDINARY GENERAL MEETING &

EXPLANATORY MEMORANDUM

To approve the proposed equal capital reduction by a distribution to shareholders of Magellan Financial Group Limited (MFG) of the shares and options in Magellan Flagship Fund Limited which are currently owned by MFG

Date of meeting: 5 February 2013

Time: 11:30 am

Place: The Press Room, Radisson Blu Plaza Hotel, 27 O’Connell Street, Sydney, New South Wales.

This document is important and requires your immediate attention. It should be read in its entirety. If you are in any doubt as to what you should do, please consult your investment, financial or other professional adviser.

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21 December 2012

Dear MFG Shareholder,

IN-SPECIE DISTRIBUTION

Overview

The Board of Magellan Financial Group Limited ( MFG ) proposes that MFG distributes to its shareholders, by way of equal capital reduction, the shares and options in Magellan Flagship Fund Limited ( MFF ) which are currently owned by MFG (the In-Specie Distribution ). The Explanatory Memorandum contains details of the In-Specie Distribution, provides an overview of MFF, describes the impact on MFG, and outlines what MFG shareholders need to do to support the In-Specie Distribution.

Your Board is pleased to put this In-Specie Distribution to MFG‟s shareholders and unanimously recommends that you approve the In-Specie Distribution by voting in favour of the capital reduction resolution, which is the item of business at the upcoming Extraordinary General Meeting of MFG.

Strategic review

The MFG Directors and senior management have recently conducted a strategic review of MFG‟s operations, capital structure and dividend policy. The review was undertaken in the context of the very successful establishment of MFG‟s wholly owned funds management business, Magellan Asset Management Limited ( MAM ), which as at 30 November 2012 had funds under management of approximately $5.7 billion.

A key outcome of this review was to confirm MFG‟s primary strategic objective to focus on developing its core funds management business. MFG‟s Managing Director and Chief Executive Officer, Hamish Douglass, heads a highly skilled team focussed clearly on investment returns, relationships and risk management. The favourable results already achieved in each of these areas provide your Board and Management with significant confidence about our primary objective and the prospects for further growth over the long term.

We also decided to introduce a dividend payout policy and to return capital to shareholders via the In-Specie Distribution.

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MFG currently owns approximately 50.2 million shares and 16.7 million options in MFF. Now that both MFG and MFF have established successful platforms for their respective business models, MFG‟s holdings of shares and options in MFF are no longer central to the development of MFG‟s core funds management business. The capital deployed in the MFF investment is considered by the Board to be surplus to MFG‟s future operational requirements.

The In-Specie Distribution

If the In- Specie Distribution is approved, MFG ordinary shareholders will receive:

• 3.29 MFF shares; and

• 1.09 MFF options,

for every 10 MFG ordinary shares held on the record date (anticipated to be 7:00pm Sydney time on 13 February 2013).

At the prices of $0.975 per MFF share and $0.17 per MFF option (being the closing prices on the ASX trading day prior to the announcement to ASX of the In-Specie Distribution), the implied value of the proposed distribution is approximately $0.34 for each MFG share, equating to around $51.8 million in total. The actual value will be determined based on the market prices when the MFF shares and MFF options are distributed, which is anticipated to be 19 February 2013.

The In-Specie Distribution will be treated as comprising two components: a return of capital and a fully franked dividend[1] . It is expected that the capital component will be approximately 26.73 cents per MFG Share and the dividend component will be equal to the total market value of the In-Specie Distribution per MFG Share on the date of the In-Specie Distribution in February 2013 less the capital component per MFG share on the date of the distribution (approximately 7.27 cents per MFG share, based on the current prices noted above).

1 The Board expects that MFG will be in a position to fully frank the dividend component of the InSpecie Distribution based on the current market values of MFF shares and MFF options. However, MFG’s ability to fully frank the dividend component will depend upon the actual amount of the dividend which, in turn, will however depend upon the market values of the MFF Shares and MFF Options on the date of distribution, particularly if the market values of the MFF Shares and MFF Options increase. MFG will provide shareholders with a distribution statement which will specify the amount of the dividend component and the extent to which it is franked. Further details are provided in the enclosed Explanatory Memorandum.

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The Board believes that this capital management initiative is the most effective means of:

• distributing MFG‟s surplus capital to shareholders;

• providing MFG shareholders with greater choice through a direct investment in MFF; and

• maximising shareholder value. (The market price of MFG shares has risen since the announcement to the ASX of the In-Specie Distribution and the Dividend Policy on 14 December 2012).

Effect of the In-Specie Distribution

The financial impact of the In-Specie Distribution on MFG itself is modest. MFG‟s strong balance sheet would be maintained with approximately $102million of consolidated net assets (pro-forma based on the 30 June 2012 figures).

The dividends MFG receives on its MFF holding are also not material in the context of MFG‟s profitability. MFG shareholders who retain the MFF shares distributed to them as a result of the In-Specie Distribution would instead receive their proportion of MFF‟s dividends directly.

On receipt of your MFF shares and options you may choose to deal with your holdings in MFF without affecting your holding in MFG, and this provides you with additional investment choices.

MFF is listed on ASX in its own right and MFF shares and options currently trade under the ASX codes MFF and MFFO respectively. MFF announces to ASX its net tangible asset backing per share each week. MFF‟s portfolio is managed by MAM under an investment management agreement which is scheduled to run until 2016.

I will continue to be the portfolio manager of MFF and Chairman of MFG after the In-Specie Distribution and will continue to be fully available to Hamish, MFG‟s clients and our executive team. My intention is to retain my security holdings in both MFF and MFG, including the MFF securities to be distributed via the In-Specie Distribution. My existing holding in MFF is the second largest (after MFG‟s holding which is to be distributed to MFG shareholders under this In-Specie Distribution).

The terms of MFG‟s Class B shares and 2016 Options will be adjusted by the amount of the In-Specie Distribution. You should refer to the Explanatory Memorandum for an explanation of the effect of these adjustments.

Dividend policy

The Board‟s strategic review also encompassed MFG‟s dividend policy. The Board is pleased to advise that MFG has adopted a future dividend payout target of approximately 75-80% of

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the profit after tax attributable to MFG‟s funds management business, subject to available franking credits.

The Board expects that dividend levels for the 2012/13 year will increase from the 4.5 cents per share fully franked paid for 2011/12, provided that the MFG Group maintains its increased levels of funds under management and profitability. Further details regarding the 2012/13 interim dividend are scheduled to be announced in February 2013 at the time of the interim results announcement.

The Board also decided to continue to increase MFG‟s investment of its capital in MAM‟s core global equities strategy. The Board decided to sell MFG‟s small principal listed equity portfolio and the proceeds have been reinvested in MAM‟s core global equities strategy. These actions also represent a further alignment of MFG‟s interests with its funds management clients.

What you need to do

The enclosed Notice of Meeting and Explanatory Memorandum contains important information (including the taxation consequences of the In-Specie Distribution) and you should read this document carefully as part of your consideration of the Proposal In-Specie Distribution. If you are in any doubt about any aspect of the In-Specie Distribution, you should consult your professional legal or financial advisers.

MFG shareholders will have the opportunity to vote on the capital reduction resolution at the Extraordinary General Meeting of MFG to be held at 11.30am on Tuesday, 5 February 2013 in the Press Room, Radisson Blu Plaza Hotel, 27 O‟Connell Street, Sydney.. If the resolution is approved, MFG shareholders are expected to receive their MFF shares and MFF options on 19 February 2013. MFF shares and MFF options are expected to continue trading on ASX during that period.

If you are not able to attend the meeting you may appoint a proxy or proxies to vote on your behalf using the proxy form enclosed with this Explanatory Memorandum.

The distribution to MFG shareholders of the MFF shares and options has the unanimous support of the MFG Board. On behalf of the MFG Board, I encourage you to vote in favour of the In-Specie Distribution.

Yours faithfully,

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Chris Mackay Chairman Magellan Financial Group Limited

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Notice of Extraordinary General Meeting

Notice is hereby given that an Extraordinary General Meeting (Meeting) of Magellan Financial Group Limited (Company) will be held at 11:30am on Tuesday, 5 February 2013 in the Press Room, Radisson Blu Plaza Hotel, 27 O’Connell Street, Sydney, New South Wales.

BUSINESS:

1. Resolution – Approval of capital reduction

To consider and if thought fit to pass the following resolution as an ordinary resolution:

“That approval is given for all purposes to the equal reduction of capital by way of the In-Specie Distribution on the terms and conditions set out in the Explanatory Memorandum accompanying the Notice of Meeting convening this meeting.”

Capitalised terms used in this Notice of Meeting are defined in the Glossary set out in the Explanatory Memorandum which accompanies this Notice of Meeting.

GENERAL INFORMATION

holding the meeting (i.e. by no later than 11:30am (Sydney time) on 3 February 2013) using one of the following methods:

•  Vote Online at: www.boardroomlimited.com.au/vote/mfgegm2013

•  Deliver the Proxy Form to the office of the Company‟s Share Registry, Boardroom Pty Limited, Level 7, 207 Kent Street, Sydney NSW 2000;

•  Mail the Proxy Form to Boardroom Pty Limited, GPO Box 3993, Sydney, NSW 2001 Australia; or

•  Fax the Proxy Form to Boardroom Pty Limited on +61 2 9290 9655.

Further directions for the proper completion of the Proxy Form are set out in the Proxy Form.

Voting entitlements

The Company has determined in accordance with regulation 7.11.37 of the Corporations Regulations 2001 (Cth) that for the purposes of the Meeting (including voting), Shares will be taken to be held by those persons recorded in the Company‟s register as at 7:00pm (Sydney time) on 3 February 2013 ( Voting Entitlement Date ).

Proxies

A shareholder entitled to attend and vote at the Meeting is entitled to appoint not more than two proxies, who need not be members of the Company. Where more than one proxy is appointed, each proxy should be appointed to represent a specified percentage or specified number of the shareholder‟s voting rights. If the appointments do not specify the percentage or number of votes that each proxy may exercise, each proxy may exercise half the votes. Fractions of votes will be disregarded.

If a person appointed as a proxy for a shareholder who is entitled to vote (and such proxy is not chairing the meeting) abstains from voting and the directions on the Proxy Form require that person to vote, the votes not exercised by that person will be given to the person chairing the meeting to vote in accordance with the directions on the Proxy Form. A proxy holder who holds contradictory instructions from multiple members must not vote on a show of hands.

If the chair is your proxy and you choose not to mark the box instructing the chair how to vote, the chair will exercise these votes in favour of the resolution.

A Proxy Form accompanies this Notice of Meeting. To be valid, online proxy voting or the completed Proxy Form must be submitted at least 48 hours before the time for

Voting by attorney

A shareholder entitled to attend and vote at the Meeting may appoint an attorney to vote at the Meeting. Attorneys should bring an original or certified copy of the Power of Attorney to the Meeting.

Corporations

A corporation that is a shareholder or a proxy may elect to appoint a representative in accordance with the Corporations Act, in which case the Company will require written proof of the representative‟s appointment, which must be lodged with or presented to the Company at least 48 hours before the commencement of the Meeting.

Registration

If you are attending the Meeting in person, please bring the personalised Proxy Form enclosed with this Notice of Meeting with you to facilitate registration. If you do not bring the Proxy Form with you, you will still be able to attend the Meeting, but at registration, the Company‟s representatives will need to verify your identity. Registration will be available from 11:00am on the day of the Meeting.

By order of the Board

Leo Quintana

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Company Secretary 21 December 2012

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EXPLANATORY MEMORANDUM

This Explanatory Memorandum is provided to Shareholders to explain the Resolution to be put to Shareholders at the Company‟s Meeting to be held on 5 February 2013 at 11:30am.

The Directors recommend that Shareholders read carefully the Notice of Meeting and this Explanatory Memorandum in full before making any decision in relation to the Resolution.

Capitalised terms used in this Explanatory Memorandum are defined in the Glossary set out in Section 4.

1. RESOLUTION – APPROVAL OF IN-SPECIE DISTRIBUTION

1.1 Introduction

Shareholders are being asked to consider and, if thought fit, to pass an ordinary resolution authorising the Company to reduce its share capital by distributing inspecie to Shareholders the MFF In-Specie Shares and MFF In-Specie Options in Magellan Flagship Fund Limited ( MFF ) held by the Company.

If the Resolution is approved, the Company will conduct an equal reduction of its share capital in accordance with sections 256B and 256C of the Corporations Act and distribute the MFF In-Specie Shares and MFF In-Specie Options to Shareholders on a pro-rata basis (subject to fractional entitlements being rounded down to the nearest whole number of MFF In-Specie Shares or MFF In-Specie Options (as applicable)) ( In-Specie Distribution ).

Each Shareholder who is entitled to participate in the InSpecie Distribution will receive the Return Per Share, being 3.29 MFF Shares and 1.09 MFF Options for every 10 Shares held on the Record Date.

To the extent that the Company retains any MFF Shares or MFF Options following the In-Specie Distribution as a result of fractional entitlements being rounded down, the Company intends to sell such MFF Shares and MFF Options on-market.

Under the In-Specie Distribution, Shareholders will not be required to pay any consideration for the MFF InSpecie Shares or MFF In-Specie Options. The In-Specie Distribution will consist of two components: a return of capital and a dividend franked to the extent possible (together, the Capital Reduction Amount ). Based on the MFF Share and MFF Option prices at the date of this Explanatory Memorandum, it is expected that the dividend component will be fully franked. A discussion of the tax consequences of the In-Specie Distribution is set out in Section 1.9.

The terms of the In-Specie Distribution are the same for each Shareholder. The date for determining which

Shareholders are entitled to participate in the return of capital is the Record Date.

For the purposes of section 256B(2) of the Corporations Act, the In-Specie Distribution involves an equal reduction of capital which requires the approval of Shareholders by way of an ordinary resolution in general meeting. Accordingly, for the Resolution to be approved, a majority of votes by those present in person or by proxy must be cast validly in favour of the Resolution. In addition, the Resolution must be approved taking into account the voting rights of the holder of the MFG Class B Shares as set out in Section 1.8(f).

The exact value of the Capital Reduction Amount will not be known until the date of the In-Specie Distribution, at which time the value and composition (as between the capital return and dividend components for tax purposes) of the In-Specie Distribution will be determined.

At the prices of $0.975 per MFF Share and $0.17 per MFF Option (being the closing prices on the ASX trading day prior to the date of the announcement to ASX of the In-Specie Distribution) and assuming that the MFF InSpecie Shares and MFF In-Specie Options are distributed to Shareholders, the implied total value of the proposed distribution is approximately $0.34 for each Share and the Capital Reduction Amount would be approximately $51.8 million.

The Board recommends that each Shareholder seeks their own tax advice in relation to the In-Specie Distribution. However, in order to assist Shareholders, the Board has included a general summary of the tax consequences of the In-Specie Distribution in Section 1.9.

1.2 Reasons for the reduction of capital

The primary purpose of the In-Specie Distribution is to distribute to Shareholders that part of the Company‟s capital that represents the MFF In-Specie Shares and MFF In-Specie Options.

The Board believes that this capital management initiative is the most effective means of:

• distributing the Company‟s surplus capital to Shareholders;

• providing the Company‟s Shareholders with greater choice through a direct investment in MFF; and

• maximising Shareholder value.

The Company‟s holdings of MFF Shares and MFF Options are not required by the MFG Group‟s core funds management operations and this capital is considered to be surplus to the MFG Group‟s future operational requirements. The In-Specie Distribution will distribute the MFF In-Specie Shares and MFF In-Specie Options to

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the Company‟s ordinary Shareholders in proportion to their ordinary shareholdings.

The financial impact of the In-Specie Distribution on the Company is modest and following the distribution the Company will continue to have a strong balance sheet. The effect of the In-Specie Distribution is outlined in the pro-forma Statement of Financial Position (unaudited) as at 30 June 2012 set out in Section 1.8(c). After adjusting for the In-Specie Distribution, the Company‟s consolidated pro-forma net assets as at 30 June 2012 was approximately $102.2 million.

The Board considers that the ongoing impact of the InSpecie Distribution on the MFG Group's consolidated Statement of Comprehensive Income should not be material. The estimated impact of the In-Specie Distribution on the MFG Group‟s consolidated Statement of Comprehensive Income (unaudited) is set out in Section 1.8(d).

The Company currently holds 50,198,707 MFF Shares, which represents an approximate 14.5% interest in MFF. The Company also holds 16,732,902 MFF Options, or approximately 14.6% of all MFF Options issued by MFF. The In-Specie Distribution will, if the Resolution is approved, result in Shareholders‟ indirect interests in MFF becoming direct interests.

1.3 Disadvantages

The Directors consider that disadvantages of the InSpecie Distribution may include the following:

• the NTA of the Company will be reduced by the Capital Reduction Amount;

• the In-Specie Distribution may have tax consequences for Shareholders (refer Section 1.9);

• Shareholders may incur transaction and brokerage costs if they subsequently choose to dispose of MFF Shares and/or MFF Options they receive through the In-Specie Distribution;

• the In-Specie Distribution is likely to result in a gain for the MFG Group which is likely to result in a tax liability for the MFG Group;

• the number of Shares into which MFG Class B Shares are converted will be adjusted, resulting in the holder of the MFG Class B shares being entitled to a higher number of Shares on conversion (refer Section 1.8(f));

• the maximum amount of capital potentially raised by the Company upon the exercise of any Options will be reduced due to the adjustment of the Option exercise price (refer to Section 1.8(e)); and

• there is no guarantee as to the liquidity and market price of MFF Shares and MFF Options, in particular, there is no guarantee that the combined market

value of the MFF In-Specie Shares and MFF In-Specie Options and the Company after the In-Specie Distribution will be more than the market value of the Company immediately before the In-Specie Distribution.

1.4 Right to participate

The Record Date for entitlement to participate in the InSpecie Distribution will be 7:00pm Sydney time on 13 February 2013, if the Resolution is approved.

1.5 Amount of entitlement

Each Shareholder who is entitled to participate in the InSpecie Distribution will receive the Return Per Share, being 3.29 MFF Shares and 1.09 MFF Options for every 10 Shares held on the Record Date.

1.6 Timetable

Set out below is the indicative timetable for the InSpecie Distribution. These dates are subject to change at the Board‟s discretion (subject to the Listing Rules and applicable law). Any changes to the timetable will be notified to ASX and posted on the Company's website.

Event	Date
Meeting date	5 February 2013
Trading in Shares on an “ex return of capital” basis	7 February 2013
Record Date for In-Specie Distribution	7:00pm (Sydney time) 13 February 2013
Date for distribution of MFF In-Specie Shares and MFF In-Specie Options	19 February 2013

1.7 Trading in Shares

If the Resolution is approved, Shares will trade on an “ex return of capital basis” on 7 February 2013 (subject to any changes to the timetable), which is the second business day after the Meeting.

1.8 Effect of the return of capital

(a) Effect on creditors

The In-Specie Distribution involves a reduction of the Company‟s total equity. However, in the opinion of the Board, this will not materially prejudice the Company‟s ability to pay its creditors.

(b) Effect on Shareholders

The In-Specie Distribution will have no effect on the number of Shares held by Shareholders. However, as a result of the In-Specie Distribution, the number of Shares into which MFG Class B Shares are converted will be adjusted in accordance with clause 7.3 of the Terms of Issue of MFG Class B Shares, an extract of which is included in Annexure B. This will result in the holder of

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the MFG Class B Shares being entitled to a higher number of Shares on conversion of the MFG Class B Shares on the conversion date (21 November 2016).

At the prices of $0.975 per MFF Share and $0.17 per MFF Option and an assumed VWAP of $5.13 per MFG Share (being the closing prices on the ASX trading day prior to the date of the announcement to ASX of the InSpecie Distribution), the likely effect of this adjustment would have been to increase the number of Shares on 683,000 Shares. The percentage increase in the number of Shares to be issued on conversion formula will not be known until the date of the In-Specie Distribution and will also depend upon the total number of Shares on issue immediately prior to conversion in 2016. Based on the above assumptions, this adjustment would dilute the percentage interests of existing Shareholders assuming full conversion of the Options by approximately 0.35%. Shareholders will be entitled to the Return Per Share, whereas the holder of the MFG Class B Shares will not have any entitlement to receive the Return Per Share.

The Company has no partly paid shares on issue and no convertible securities on issue (other than the Options and MFG Class B Shares).

(c) Effect on the MFG Group’s consolidated Statement of Financial Position

On completion of the In-Specie Distribution, the total equity of the Company will be reduced by the Capital Reduction Amount.

To illustrate the effect of the In-Specie Distribution on the MFG Group‟s financial position, the following unaudited pro-forma Statement of Financial Position has been prepared, based on the MFG Group‟s consolidated audited Statement of Financial Position as at 30 June 2012 adjusted to reflect the In-Specie Distribution. The following assumptions have been made in the preparation of this pro-forma Statement of Financial Position:

• The Company holds 50,198,707 MFF Shares and 16,732,902 MFF Options;

• At the closing prices of $0.975 per MFF Share and $0.17 per MFF Option as at 13 December 2012 (being the closing prices on the ASX trading day prior the date of the announcement to ASX of the InSpecie Distribution), the implied value of the proposed distribution is approximately $0.34 for each Share, equating to approximately $51.8 million in total;

• MFF Options were acquired by MFG on their issue date of 17 October 2012 for $nil consideration;

• All MFF In-Specie Shares (50,191,694 MFF Shares) and all MFF In-Specie Options (16,628,859 MFF Options) are distributed to Shareholders;

• All undistributed MFF Shares (7,013 MFF Shares) and undistributed MFF Options (104,043 MFF Options) are disposed on market on 13 December 2012 at the prevailing ASX closing prices of $0.975 per MFF Share and $0.17 per MFF Option;

• On 13 December 2012 the total value of the InSpecie Distribution was approximately $51.8 million, comprising MFF In-Specie Shares with a value of approximately $48.9 million and MFF In-Specie Options with a value of approximately $2.8 million;

• The MFG Group‟s employees and non-executive directors who have financial assistance amounts outstanding under the Company‟s Share Purchase Plan (SPP) elect to receive their Return Per Share and not apply the net proceeds from the sale of their entitlement against the outstanding balance of any financial assistance; and

• Available carried forward capital losses are utilised against a portion of the capital gains arising from the In-Specie Distribution.

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MFG Group Pro-forma Consolidated Statement of Financial Position

MFG Group Pro-forma Consolidated Statement of Financial Position	MFG Group Pro-forma Consolidated Statement of Financial Position
Assets Current assets Cash and cash equivalents Financial assets Financial assets - MFF Options Trade and other receivables Loans - share purchase plan (SPP) Prepayments Total current assets Non-current assets Financial assets Financial assets - MFF Shares Deferred tax assets Loans - share purchase plan (SPP) Property, plant and equipment Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Income tax payable Total current liabilities Non-current liabilities Deferred tax liability Total non-current liabilities Total liabilities Net assets Total Equity NTA per share No of shares '000s NTA per share - fully diluted No of shares - fully diluted '000s	30-Jun-12 Revaluation of MFF Shares and MFF Options, tax effected Disposal and Distribution Pro-forma 30-Jun-12 $ ’000 $ ’000 $ ’000 $ ’000 1,052 - 25 1,077 30,565 30,565 - 2,845 (2,845) - 9,638 - - 9,638 1,658 - - 1,658 164 - - 164
	43,077 2,845 (2,820) 43,102
	65,428 - - 65,428 42,167 6,777 (48,944) - 200 (2,886) 6,220 3,533 4,661 - - 4,661 272 - - 272
	112,728 3,890 (42,724) 73,894
	155,805 6,735 (45,544) 116,996
	4,465 - - 4,465 4,124 - 5,550 9,674
	8,589 - 5,550 14,139
	- - 670 670
	- - 670 670
	8,589 - 6,220 14,809
	147,216 6,735 (51,764) 102,187
	147,216 6,735 (51,764) 102,187
	0.965 $ 0.670 $ 152,558 152,558 1.005 $ 0.721 $ 170,067 170,750

Note: The pro-forma adjustment entries have been calculated based on ASX closing prices of MFF Shares and MFF Options on the ASX trading day prior to the date of the announcement of the In-Specie Distribution. The actual entries may differ depending on the actual ASX prices used to determine the Capital Reduction Amount.

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(d) Effect on MFG Group’s consolidated Statement of Comprehensive Income

The In-Specie Distribution, on the basis of the assumptions set out in Section 1.8(c), would result in an increase of approximately $6.7 million, net of tax, to the MFG Group‟s pro-forma Statement of Comprehensive Income. This increase represents the change in the fair value of the Company‟s holdings of MFF Shares from 30 June 2012 to 13 December 2012, net of tax, and the combined change in fair value of the Company‟s holdings of MFF Options from the date of acquisition to 13 December 2012, with reference to the ASX closing prices of MFF Shares and MFF Options on the ASX trading day prior to the date of the announcement of the In-Specie Distribution.

The In-Specie Distribution would result in an increase to pro-forma net operating profit (after tax) of approximately $15.9 million and a decrease to pro-forma other comprehensive income, net of tax of approximately $9.2 million. The actual entries may differ depending on the actual ASX prices used to determine the Capital Reduction Amount.

The Board considers that the ongoing impact of the InSpecie Distribution on the MFG Group‟s consolidated Statement of Comprehensive Income is not likely to be material.

The MFF directors have announced an intention to commence a regular six monthly dividend at 1.0 cent per MFF Share, subject to corporate, legal and regulatory considerations. Assuming MFF pays an interim dividend of 1.0 cent per MFF Share for the six months ending 31 December 2012, consistent with the statement of intention by the directors of MFF, and assuming this dividend is unfranked (the directors of MFF have made no statement as to the level of franking of future dividends), the effect of the Company not receiving dividends on its MFF In-Specie Shares would be to reduce the MFG Group‟s consolidated net operating profit (after tax) for the year ending 30 June 2013 by approximately $0.35 million.

The effect of the Company not receiving dividends on its MFF In-Specie Shares for the year ending 30 June 2014, the first full financial year after the In-Specie Distribution is made, is estimated to be approximately $0.7 million, assuming MFF pays half yearly dividends consistent with the directors‟ statement of intention and the assumptions noted above.

The Company‟s Shareholders who retain the MFF Shares distributed to them as a result of the In-Specie Distribution would instead receive their proportion of those MFF dividends directly.

(e) Effect on Options in the Company

Listing Rule 7.22.3 provides that in a return of capital, the number of options must remain the same and the exercise price of each option must be reduced by the same amount as the amount returned in relation to each ordinary security.

The Company currently has the following Options on issue:

Number of Options	Exercise price pre- In-Specie Distribution	Expiry date
7,882,483	$3.00	30 June 2016

In accordance with Listing Rule 7.22.3 and the Terms of Issue of MFF Options, the exercise price for each Option on issue on the Record Date will be reduced by the same amount as the amount returned in relation to each Share (i.e. by the value of the Return Per Share).

Details of the Directors‟ holdings in the Company‟s Options are set out in Section 3.1.

(f) Effect on holder of MFG Class B Shares

The Company has 10,200,000 MFG Class B Shares on issue to an entity controlled by the Managing Director and Chief Executive Officer of the Company, Mr Hamish Douglass.

Under the Terms of Issue of MFG Class B Shares, the holder of those shares has the right to vote on any proposal to reduce the share capital of the Company. On a poll, the holder of the MFG Class B Shares is entitled to one vote for each Share into which the MFG Class B Shares would convert in accordance with clause 7.1 of the Terms of Issue of MFG Class B Shares (an extract of which is included in Annexure B), as if those shares had converted immediately before the Voting Entitlement Date. The holder of MFG Class B Shares would therefore be expected to have voting rights equivalent to 9,153,500 Shares on a poll. However, the holder does not have any entitlement to receive the Return Per Share.

As a result of the In-Specie Distribution, the number of Shares into which MFG Class B Shares are converted will be adjusted in accordance with clause 7.3 of the Terms of Issue of MFG Class B Shares, an extract of which is included in Annexure B. Calculations are included in section 1.8(b).

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1.9 Tax consequences

The following contains a general summary of the Australian tax implications of the In-Specie Distribution to Shareholders who are residents of Australia for income tax purposes and who hold their Shares on capital account. The summary does not take account of the individual circumstances of particular Shareholders and is intended as a general guide only. Shareholders should seek independent professional advice on the tax implications of the InSpecie Distribution based on their own individual circumstances.

(a) In-Specie Distribution

The In-Specie Distribution will consist of two components: a return of capital and a fully or partially franked dividend (see further below in respect of franking). The Company intends to allocate the In-Specie Distribution between these two components in the following manner:

• (a) the amount of capital to be returned to Shareholders will equal the Company's capital gains tax ( CGT ) cost base for MFF Shares (MFF Options have no cost base) and this amount will be debited to the Company's share capital account; and

• (b) the amount of the dividend to be distributed to Shareholders will equal the difference between the market value of MFF Shares and MFF Options on the date of the In-Specie Distribution and the amount of the CGT cost base for MFF Shares (the amount of share capital returned). Therefore, the amount of the dividend component will depend upon the value of MFF Shares and MFF Options on the date of the In-Specie Distribution.

It is expected that the capital component of the InSpecie Distribution will be approximately 26.73 cents per Share.

Based on the current market value of MFF Shares and MFF Options, the Company expects that it will be in a position to fully frank the dividend component of the In-Specie Distribution. However, the Company's ability to fully frank the dividend component will depend upon the actual amount of the dividend which, in turn, will depend upon the value of MFF Shares and MFF Options at the time of the In-Specie Distribution. The Company will provide Shareholders with a distribution statement which will state the amount of the dividend component and the extent to which it is franked.

The Company has not sought a Class Ruling from the Australian Taxation Office confirming the tax consequences of the In-Specie Distribution and, in particular, that the Commissioner of Taxation will

not make a determination under section 45B of the Income Tax Assessment Act 1936 to deem all or part of the return of capital component of the InSpecie Distribution to be an unfranked dividend. However, the Company intends to treat the entire increase in the value of MFF In-Specie Shares and MFF In-Specie Options as a dividend and, as such, considers that there should be no reasonable basis upon which the Commissioner of Taxation would seek to overturn the Company's allocation of the InSpecie Distribution between the return of capital and dividend components as described above.

(b) Tax treatment of capital component

The return of capital will constitute a 'CGT event' which may give rise to a cost base adjustment or a capital gain for Shareholders.

If the amount of capital returned by the Company does not exceed a Shareholder's CGT cost base for their Shares, no capital gain should arise for the Shareholder and the cost base and reduced cost base of the Shareholder's Shares should be reduced to the extent of the amount of the capital returned.

Shareholders will derive capital gains to the extent that the amount of capital returned by the Company exceeds their CGT cost base for their Shares. Any such capital gains would be required to be included in the calculation of any net capital gain, which in turn would be included in the assessable income of those Shareholders.

Shareholders who are individuals, trusts or complying superannuation entities may be entitled to reduce capital gains (after taking into account capital losses) by half, in the case of individuals and trusts, or by one-third, in the case of complying superannuation entities, if they have held, or are deemed to have held, their Shares for at least 12 months prior to the time of the relevant CGT event. Companies are not entitled to claim the CGT discount.

Shareholders should seek their own advice as to whether they are entitled to claim a CGT discount and, in particular, trustees should seek advice as to whether the benefit of any discount capital gain derived by a trust will be taken to flow through to beneficiaries of the trust.

(c) Tax treatment of dividend component

The dividend component of the In-Specie Distribution must be included in a Shareholder's assessable income along with an amount equal to any franking credit attached to the dividend. Depending upon a Shareholder's particular circumstances, the Shareholder may be entitled to a tax offset equal to the amount of the franking credit. Shareholders should seek their own tax

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advice on the tax treatment of the dividend component of the In-Specie Distribution having regard to their particular circumstances and, in particular, whether they satisfy the at-risk holding period requirements to be a 'qualified person' with respect to the distribution and, therefore, to be entitled to franking credit benefits.

(d) MFF In-Specie Shares and MFF InSpecie Options distributed

For CGT purposes, each Shareholder will be taken to have acquired their MFF In-Specie Shares and MFF In-Specie Options on the date of the In-Specie Distribution.

The first element of Shareholders' cost bases for their MFF Shares and MFF Options will be equal to the market value of MFF Shares when distributed.

1.10 Costs

The Company‟s costs to implement the In-Specie Distribution are estimated at approximately $150,000.

1.11 Approvals needed to implement In-Specie Distribution

The proposed In-Specie Distribution is an equal reduction of capital. Under section 256B of the Corporations Act, the Company may only reduce its capital if:

• (a) it is fair and reasonable to Shareholders as a whole;

• (b) it does not materially prejudice the Company‟s ability to pay its creditors; and

• (c) it is approved by Shareholders in accordance with section 256C of the Corporations Act.

Section 256C of the Corporations Act requires that an equal reduction of capital be approved by Shareholders by an ordinary resolution passed at a general meeting of the Company.

In relation to these requirements:

• (a) the Board considers that the In-Specie Distribution is fair and reasonable to Shareholders as a whole because it applies to all Shareholders equally. Further, the Board considers that the Return Per Share is a reasonable return to Shareholders;

• (b) the Board considers that the In-Specie Distribution does not materially prejudice the Company‟s ability to pay its creditors; and

• (c) the Resolution requires approval of Shareholders in accordance with section 256C of the Corporations Act. This Notice

of Meeting notifies Shareholders of the Meeting at which approval of the Resolution is being sought.

1.12 Membership of MFF

If Shareholders approve the Resolution, all Shareholders (including those who did not vote or who did not vote in favour of the Resolution) will become members of MFF and will become bound by MFF's constitution. Further information about MFF is set out in Section 2.

1.13 Directors’ recommendations

The Board recommends unanimously that Shareholders vote in favour of the Resolution.

2. ABOUT MAGELLAN FLAGSHIP FUND

The information on MFF, MFF Shares and MFF Options contained in this Explanatory Memorandum has been prepared based on a review of publicly available information and should not be considered comprehensive. Information in this Explanatory Memorandum concerning MFF, MFF Shares and MFF Options has not been independently verified by the Company. None of the Company, the Board, nor any member of MFG Group or their respective officers or employees make any representation or warranty (express or implied) as to the accuracy or completeness of this information.

2.1 Introduction

Magellan Flagship Fund Limited (ASX Code: MFF) offers investors the opportunity to invest in an ASXlisted investment company.

MFF has appointed MAM (Magellan Asset Management Limited), a wholly owned subsidiary of the Company, to manage MFF‟s investment portfolio under an Investment Management Agreement, the term of which is scheduled to run until 2016.

2.2 MFF principal activity

The principal activity of MFF is stated in the 2012 MFF Annual Report as the investment into a minimum number of 20 listed international and Australian companies, perceived by MAM to have attractive business characteristics at a discount to their assessed intrinsic value.

2.3 MFF capital

(a) MFF Shares

There are 345,387,441 MFF Shares on issue as at the date of this Explanatory Memorandum.

(b) MFF Options

There are also 114,508,295 MFF Options on issue as at the date of this Explanatory Memorandum. The

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MFF Options were issued under a pro rata bonus issue to MFF shareholders of 1 MFF Option for every 3 MFF Shares held by each MFF shareholder. The terms of that offer were set out in a prospectus dated 27 September 2012 ( Prospectus ). The MFF Options are quoted and able to be traded on ASX.

Each MFF Option gives the holder the right to acquire one MFF Share and is exercisable at $1.05 per MFF Option at any time prior to 5.00pm (Sydney time) on 31 October 2017. If all MFF Options are exercised, MFF will raise approximately $120.2 million. Further details and conditions of the bonus issue and the MFF Options are set out in the Prospectus.

2.4 MFF buy-back

MFF has an ongoing on-market share buyback programme and the current buyback authorisation is for up to 6,844,349 MFF Shares. The period in which MFF is conducting this buyback is currently scheduled to close on 9 September 2013.

2.5 MFF dividends

The MFF Annual Report for the year ended 30 June 2012 states that the directors of MFF have a preference to commence a regular six monthly dividend at 1.0 cent per MFF Share, subject to corporate, legal and regulatory considerations. The first 1.0 cent per share dividend was paid by MFF on 16 November 2012. MFF‟s Dividend Reinvestment Plan operated in respect of this dividend at no discount to the weighted average market price of MFF Shares.

2.6 MFF Share price and NTA before tax

The following table sets out the closing share price of MFF Shares and NTA before tax per MFF Share as at 30 June and 31 December for the last two financial years and as at 30 November 2012.

Date	MFF Share price*	NTA per MFF Share before tax
30 November 2012	$0.965	$0.968
30 June 2012	$0.840	$0.954
31 December 2011	$0.700	$0.820
30 June 2011	$0.680	$0.762
31 December 2010	$0.725	$0.737
30 June 2010	$0.630	$0.759

• As at the date specified or the last ASX trading day prior to that date if the specified date is not an ASX trading day.

The NTA per MFF Share is reported to ASX on a weekly basis, and at each month end.

2.7 Access to other MFF information

MFF is a disclosing entity for the purposes of the Corporations Act and, as such, is subject to regular reporting and disclosure obligations. Broadly, these obligations require MFF to:

• (a) prepare and lodge with ASIC both yearly and half yearly financial statements accompanied by a directors‟ statement and report and an audit or review report;

• (b) within 14 days after the end of each month, inform ASX of the NTA per MFF Share of its quoted securities as at the end of that month; and

• (c) immediately notify ASX of any information concerning MFF of which it is, or becomes, aware and which a reasonable person would expect to have a material effect on the price or value of securities in MFF, subject to certain limited exceptions related mainly to confidential information.

Copies of documents lodged at ASIC in relation to MFF may be obtained from or inspected at an office of ASIC.

As a company listed on ASX, MFF is subject to the Listing Rules which require (subject to certain exceptions) immediate disclosure to the market of any information concerning MFF of which it becomes aware which a reasonable person would expect to have a material effect on the price or value of its securities. Not all information that is already in the public domain in relation to MFF has been included in this Explanatory Memorandum. Copies of documents lodged with ASX in relation to MFF may be downloaded from ASX.

Further information relating to MFF is available on MFF's website: www.magellangroup.com.au/mff/.

3. ADDITIONAL INFORMATION

3.1 Directors’ interests in the Company

The Directors hold Shares and Options in the Company as set out in the table below as at the date of this Explanatory Memorandum.

Name	Shares	Options
Chris Mackay	18,077,777	2,644,354
Hamish Douglass	10,519,917	297,792
Naomi Milgrom AO	6,182,360	16,532
Paul Lewis*	2,000,747	5,790
Brett Cairns*	1,095,481	11,467

• Includes Shares issued pursuant to the Company‟s Share Purchase Plan

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The Directors will be entitled to participate in the InSpecie Distribution on any Shares.

As noted in Section 1.8(f), Mr Hamish Douglass also holds an interest in 10,200,000 MFG Class B Shares.

3.2 Share Purchase Plan

The Board has resolved in accordance with the rules of the Company‟s Share Purchase Plan ( SPP ) that MAM employees and Directors who own Shares through their participation in the SPP may elect either to receive their Return Per Share or apply the net proceeds from the sale of their entitlement to MFF Shares and MFF Options against the outstanding balance of any financial assistance provided by the Company under the SPP.

3.3 Directors’ interests in MFF

The Directors hold MFF Shares and MFF Options as set out in the table below as at the date of this Explanatory Memorandum.

Name	MFF Shares	MFF Options
Chris Mackay	19,420,317	6,404,431
Hamish Douglass	750,000	249,999
Naomi Milgrom AO	1,000,000	333,333
Paul Lewis	761,477	253,825
Brett Cairns	101,077	33,333

As well as being Directors of the Company, Chris Mackay and Hamish Douglass are also directors of MFF, as noted above.

3.4 ASX confirmations

The Company has applied for, and obtained, confirmations and waivers (as applicable) from ASX regarding the operation of the following Listing Rules in relation to the In-Specie Distribution:

• Listing Rule 7.17;

• Listing Rule 7.22.3;

• Listing Rule 10.1;

• Listing Rule 11.1; and

• Listing Rule 11.2.

3.5 Foreign jurisdictions

This Explanatory Memorandum has been prepared to comply with Australian law and has only been made available to Shareholders.

No action has been taken to register the MFF InSpecie Shares or MFF In-Specie Options or otherwise permit an offering of MFF In-Specie Shares or MFF In-Specie Options in any jurisdiction

outside of Australia. This Explanatory Memorandum should not be distributed to anyone other than Shareholders, other than by any Shareholder in receipt of this Explanatory Memorandum who holds Shares on behalf of a beneficial owner, to that beneficial owner, provided that either that beneficial owner is resident in Australia, or sending this Explanatory Memorandum to that beneficial owner does not constitute a breach of foreign securities laws. Shareholders located outside Australia should also have regard to the foreign disclaimers in Annexure C.

Failure to comply with such restrictions may find you in violation of applicable securities laws. The distribution of this Explanatory Memorandum outside Australia may be restricted by law. If you come into possession of this Explanatory Memorandum, you should observe any such restrictions.

This Explanatory Memorandum has been prepared having regard to Australian disclosure requirements. These disclosure requirements may be different from those in other countries.

The In-Specie Distribution to overseas Shareholders will be subject to legal and regulatory requirements in their jurisdictions. If the requirements of any jurisdiction where a Shareholder is resident are held to restrict or prohibit the In-Specie Distribution as proposed or would impose on the Company an obligation to prepare a prospectus or other similar disclosure document or otherwise impose on the Company an undue burden, the MFF In-Specie Shares and MFF In-Specie Options to which the relevant Shareholder is entitled will be sold by the Company on their behalf as soon as practicable after the date of the In-Specie Distribution and the Company will then account to those Shareholders for the net proceeds of sale after deducting the costs and expenses of the sale.

3.6 TFN

Under the Australian tax law, certain companies are entitled to ask their shareholders who have a tax file number ( TFN ) to disclose it to the company. Generally, TFNs are only held by shareholders who are either Australian residents or non-residents who file an Australian tax return. Shareholders can choose to disclose or not to disclose their TFN.

If a shareholder chooses not to disclose their TFN to the company, the company is generally required by the tax law to withhold tax, at the top marginal tax rate plus Medicare levy (being 46.5% as at the date of this Explanatory Memorandum), on any dividends or distributions paid to a resident shareholder. If the tax withheld by the company is more than the shareholder would have paid in tax, the shareholder must wait until they lodge an income tax return

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before being entitled to a refund of any excess tax withheld from the payment. On the other hand, if a shareholder chooses to disclose their TFN, the company does not have to withhold any tax from any dividends or distributions paid to the resident shareholder.

The Company (or the share registry of the Company) proposes to transfer the TFNs provided to the Company by Shareholders to MFF (or the MFF registry) on behalf of the Shareholders in respect of their tax affairs so that MFF will not be required to withhold tax from any distributions to Australian resident shareholders.

However, a Shareholder may request that the Company (or the share registry of the Company) not transfer that Shareholder‟s TFN to MFF (or the MFF share registry). If a Shareholder does not advise that they do not wish their TFN to be disclosed and collected in accordance with the process discussed above, they are deemed under the terms of the In-Specie Distribution to agree to such disclosure and collection of their TFN. Any Shareholder wishing to request that their TFN not be forwarded to MFF should contact the Company‟s share registrar, Boardroom Pty Limited on 1300 737 760 (within Australia) or on +61 2 9290 9600 (outside Australia) at any time from 8.30am to 5.00pm (Sydney time) by the date of the In-Specie Distribution (anticipated to be 19 February 2013).

3.7 ASIC and ASX involvement

A copy of the Notice of Meeting, including this Explanatory Memorandum has been provided to ASIC and lodged with ASX. Neither ASIC, nor ASX nor any of their respective officers takes any responsibility for the contents of these documents.

Memorandum, which is not contained in this Explanatory Memorandum. Any information or representation not contained in this Explanatory Memorandum may not be relied on as having been authorised by the Company in connection with the In-Specie Distribution.

3.10 Other information

Other than any information already released to ASX by the Company, there is no further information as at the date of this Explanatory Memorandum known to the Board that is material to the decision of Shareholders on how to vote on the Resolution that is not set out in this Explanatory Memorandum.

If any Shareholder is in doubt as to how to vote on the Resolution or how the Resolution may affect Shareholders, the Shareholder should seek advice from their solicitor, stockbroker, accountant or other professional financial adviser immediately.

Certain information in this Explanatory Memorandum is subject to change. If that information is not materially adverse to Shareholders, including with respect to the InSpecie Distribution, it will be updated and made available to you on the Company‟s website www.magellangroup.com.au or a paper copy of any updated information will be provided to you (free of charge) by calling the Company‟s share registrar, Boardroom Pty Limited on 1300 737 760 (within Australia) or on +61 2 9290 9600 (outside Australia) at any time from 8.30am to 5.00pm (Sydney time) Monday to Friday. If there is a materially adverse change to the information or a materially adverse omission from this Explanatory Memorandum, the Company will issue a new or supplementary Explanatory Memorandum.

3.8 Not investment advice

The information provided in this Explanatory Memorandum is not financial product advice and has been prepared without taking into account your investment objectives, financial circumstances or particular needs. Accordingly, nothing in this Explanatory Memorandum should be construed as a recommendation by the Company, or any associates of the Company, or any other person concerning an investment in MFF.

If you are in doubt as to the course of action you should follow, you should seek advice on the matters contained in this Explanatory Memorandum from a solicitor, stockbroker, accountant or other professional financial adviser immediately.

3.9 No other representation

No person is authorised to give any information or make any representation in connection with the InSpecie Distribution described in this Explanatory

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4. GLOSSARY

In this Notice of Meeting and Explanatory Memorandum:

$ means Australian dollars.

Annexure means an annexure to the Explanatory Memorandum.

ASIC means the Australian Securities and Investments Commission.

ASX means ASX Limited, or the Australian Securities Exchange, as the context requires.

Board or Directors means the board of directors of the Company (and each of the directors of the Company as the case may be).

Capital Reduction Amount means the total value of the In-Specie Distribution to be distributed to Shareholders, as determined on the Record Date.

Company means Magellan Financial Group Limited (ABN 59 108 437 592).

Corporations Act means the Corporations Act 2001 (Cth).

Extraordinary General Meeting or Meeting means the meeting convened by this Notice of Meeting.

Explanatory Memorandum means this explanatory memorandum which forms part of the Notice of Meeting.

In-Specie Distribution means the equal capital reduction by way of the distribution of MFF InSpecie Shares and MFF In-Specie Options to be distributed in-specie to Shareholders on the terms and conditions set out in this Explanatory Memorandum.

Listing Rules means the Listing Rules of ASX.

Magellan Flagship Fund or MFF means Magellan Flagship Fund Limited (ABN 32 121 977 844).

MAM means Magellan Asset Management Limited ABN 31 120 593 946.

MFF In-Specie Options means 16,628,859 MFF Options held by the Company.

MFG Group means the Company and each of its Subsidiaries.

Notice of Meeting or Notice of Extraordinary General Meeting means this notice of extraordinary general meeting including the Explanatory Memorandum.

NTA means net tangible assets.

Option means an option over a Share of the Company, expiring on 30 June 2016.

Prospectus has the meaning given in Section 2.3 (b).

Proxy Form means the proxy form accompanying this Notice of Meeting.

Record Date means 7.00pm on 13 February 2013.

Resolution means the resolution set out in this Notice of Meeting.

Return Per Share means 3.29 MFF Shares and 1.09 MFF Options for every 10 Shares held on the Record Date.

Section means a section of the Explanatory Memorandum.

Share means a fully paid ordinary share in the capital of the Company.

Shareholder means a holder of a Share.

Subsidiary has the same meaning as in the Corporations Act.

Terms of Issue of MFG Class B Shares means the Terms of Issue of the MFG Class B Shares as set out in “Annexure C” to the Company‟s Notice of Extraordinary General Meeting and Explanatory Memorandum dated 28 December 2007.

Terms of Issue of MFF Options means the “Terms of Issue of MFF Options”.

TFN means tax file number.

Voting Entitlement Date means 7:00p.m (Sydney time) on 3 February 2013.

MFF In-Specie Shares means 50,191,694 MFF Shares held by the Company.

MFF Share means a fully paid ordinary share in the capital of Magellan Flagship Fund.

MFF Option means an option issued by MFF over an MFF Share, the terms of issue of which are attached as Annexure A.

MFG Class B Shares means the MFG Class B Shares issued by the Company.

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ANNEXURE A – SUMMARY OF TERMS OF ISSUE OF MFF OPTIONS

The terms and conditions of the MFF Options, which are set out in the Terms of MFF Options, are summarised below. Note that the summary below is based on the summary of the MFF Options in the Prospectus issued by MFF relating to the MFF Options. For full details regarding the MFF Options, please refer to the Prospectus which is available at the following address: www.magellangroup.com.au/mff/investor-centre/bonus-issue-of-options/.

Register

MFF will maintain a register of holders of MFF Options in accordance with section 168(1)(b) of the Corporations Act.

Transfer/Transmission

An MFF Option may be transferred or transmitted in any manner approved by ASX.

Exercise

An MFF Option may be exercised by delivery to MFF of a duly completed “Application Form” (as defined in the Prospectus), signed by the registered holder(s) of the MFF Option, together with payment to MFF of $1.05 per MFF Option being exercised.

An MFF Option may be exercised on any “Business Day” (as defined in the Prospectus) from the date of grant of an MFF Option to the “Expiry Date” (as defined in the Prospectus) (inclusive), but not thereafter.

An exercise of MFF Options is only effective when MFF has received a duly completed Application Form and the full amount of the “Exercise Price” (as defined in the Prospectus) in cleared funds. The Application Form outlines the available Exercise Price payment methods.

The minimum number of MFF Options that can be exercised each time is the lower of 1,000 MFF Options and all the MFF Options held by the MFF Option holder.

Dividend Entitlement

MFF Options do not carry any dividend entitlement until they are exercised. MFF Shares issued on exercise of MFF Options rank equally with other issued MFF Shares on and from that date. MFF Shares issued upon the exercise of MFF Options will only participate in a future dividend or other shareholder action if such MFF Shares have been issued on or prior to the applicable record date for determining entitlements.

Participating Rights

An MFF Option holder may only participate in new issues of securities to holders of MFF Shares if the MFF Option has been exercised and MFF Shares allotted in respect of the MFF Option before the record date for determining entitlements to the issue. MFF must give at least seven (7) Business Days‟ notice to MFF Option holders of any new issue before the record date for determining entitlements to the issue in accordance with the Listing Rules.

Adjustments

If between the date of issue and the date of exercise of an MFF Option MFF makes one or more rights issues (being a pro-rata issue of MFF Shares in the capital of MFF that is not a bonus issue), the Exercise Price of MFF Options on issue will be reduced in respect of each rights issue according to the following formula:

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Where:

• NP = the new Exercise Price of the MFF Option;

• OP = the old Exercise Price of the MFF Option;

• E = the number of MFF Shares into which one Option is exercisable;

• P = the average market price per MFF Share (weighted by reference to volume) recorded on ASX during the 5 trading days ending on the day before the ex rights date or ex entitlements date (excluding special crossings and overnight sales);

• S = the subscription price for MFF Share to be issued under the pro rata issue;

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• D = the amount of any dividend or distribution due but not yet paid on the existing MFF Shares (except those securities to be issued under the pro rata issue);

• N = the number of existing MFF Shares with rights or entitlements that must be held to receive a right to one new security under the pro rata issue.

No change will be made to the number of MFF Shares to which the MFF Option holder is entitled.

If MFF makes a bonus issue of MFF Shares, the number of MFF Shares issued on exercise of each MFF Option will be increased by the number of MFF Shares which the holder of the MFF Option would have received if the MFF Option had been exercised before the record date for the bonus issue of MFF Shares. No change will be made to the Exercise Price.

Reconstructions and Alteration of Capital

Any adjustment to the number of “Outstanding Options” (as defined in the Prospectus) and the Exercise Price under a re-organisation of MFF‟s share capital must be made in accordance with the Listing Rules applying to a reorganisation of capital at the time of the reorganisation.

ASX Listing

MFF must make an application for quotation of MFF Shares issued on exercise of the MFF Options on ASX in accordance with the Listing Rules. MFF Shares so issued will rank equally with other issued MFF Shares.

Rights attaching to MFF Shares

The rights attaching to any MFF Shares issued upon exercise of the MFF Options will be governed by MFF‟s constitution, the Corporations Act and the Listing Rules.

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ANNEXURE B – EXTRACTS OF THE TERMS OF ISSUE OF MFG CLASS B SHARES

Note: the following extracts are from the Terms of Issue of MFG Class B Shares, as set out in “Annexure C” to the Company‟s Notice of Extraordinary General Meeting and Explanatory Memorandum dated 28 December 2007. Please refer to the Terms of Issue of MFG Class B Shares for full details of the terms of issue. A copy of the Terms of Issue of MFG Class B Shares is available from ASX‟s announcement platform relating to the Company under the ASX code: MFG. Note that the “Service Condition” referred to below was satisfied on 1 July 2012.

Capitalised terms used below have the meanings given to them in the Terms of Issue of MFG Class B Shares.

[…]

7.1 Conversion into Ordinary Shares

• (a) Immediately before 12.01am on the Conversion Date, the Class B Shares will be automatically consolidated or subdivided into such number of Class B Shares calculated as follows (the Conversion Number ), as may be adjusted in accordance with clauses 7.2 to 7.6:

• (i) if the Service Condition referred to in paragraph (b) below has been satisfied as at the Conversion Date – then 12 x 0.0125 x 0.40 x MFG Share Capital, or

• (ii) if the Service Condition referred to in paragraph (b) below has not been satisfied as at the Conversion Date – then 1,

with any fraction in respect of the total number of Class B Shares arising from the consolidation or subdivision being disregarded.

• (b) The Service Condition will be regarded as having been satisfied as at the Conversion Date if, as at the Conversion Date (or, when the Conversion Date is after 1 July 2012, as at 1 July 2012) any of the following apply:

• (i) Mr Douglass remains an employee or director of MFG or a subsidiary or MFG;

• (ii) Mr Douglass‟ employment with MFG or a subsidiary of MFG has been terminated by MFG or the relevant subsidiary for any reason other than wilful misconduct, negligence or fraud; or

• (iii) Mr Douglass has died or has become incapacitated and is unable to work.

• (c) The Class B Shares to be converted will, following consolidation or subdivision under paragraph (a), without any further act, convert into such number of Ordinary Shares equal to the number of Class B Shares held by the Holder that are to be converted.

• (d) On Conversion of a Class B Share under this clause 7.1, all rights and restrictions conferred on that Class B Share under these Terms of Issue will no longer have any effect, except paragraph (d) below and clause 7.7.

[…]

7.3 Adjustment for return of capital

If MFG makes a return of capital to holders of Ordinary Shares the Conversion Number shall be adjusted in accordance with the following formula:

CN = CNo x P / (P-C)

where:

“CN” is the Conversion Number applying immediately after the application of this formula;

“CNo” is the Conversion Number applying immediately prior to the application of this formula;

“P” means the VWAP during the period from the first business day after the announcement of the return of capital to the ASX up to and including the last business day of trading cum return of capital; and

“C” means the amount of the cash and/or the value (as reasonably determined by the Directors) of any other property distributed to holders of Ordinary Shares per Ordinary Share (or such lesser amount such that the difference between P and C is greater than zero).

The Class B Shares confer no right to participate in a return of capital to holders of Ordinary Shares, except on winding up.

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ANNEXURE C – FOREIGN DISCLAIMERS

1.

Hong Kong

WARNING: This Explanatory Memorandum has not been delivered for registration to the Registrar of Companies in Hong Kong and its contents have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution in relation to the offer. If you are in any doubt about any of the contents of this Explanatory Memorandum, you should obtain independent professional advice.

This Explanatory Memorandum does not constitute a prospectus (within the meaning of the Companies Ordinance (Cap. 32 of the Laws of Hong Kong)) or notice, circular, brochure or advertisement offering any securities to the public for subscription or purchase or calculated to invite such offers by the public to subscribe for or purchase any securities, nor is it an advertisement, invitation or document containing an invitation to the public within the meaning of section 103 of the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong).

The MFF In-Specie Shares and MFF In-Specie Options may not be offered or sold in Hong Kong by means of any document other than to persons who are „professional investors‟ within the meaning of the Securities and Futures Ordinance and the Securities and Futures (Professional Investor) Rules made thereunder or in other circumstances which do not result in this Explanatory Memorandum being a „prospectus‟ within the meaning of the Companies Ordinance or which do not constitute an offer to the public within the meaning of the Companies Ordinance; and no person may issue or have in its possession for the purposes of issue, this Explanatory Memorandum or any invitation, advertisement or other document relating to the MFF In-Specie Shares or MFF In-Specie Options, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to the MFF In-Specie Shares or MFF In-Specie Options which are or are intended to be disposed of only to persons outside Hong Kong or only to „professional investors‟ within the meaning of the Securities and Futures Ordinance and the Securities and Futures (Professional Investor) Rules made thereunder.

This Explanatory Memorandum is for the exclusive use of the Company‟s Shareholders in connection with the In-Specie Distribution, and no steps have been taken to register or seek authorisation for the issue of this Explanatory Memorandum in Hong Kong.

This Explanatory Memorandum is confidential to the person to whom it is addressed and must not be distributed, published, reproduced or disclosed (in whole or in part) by the Company Shareholders to any other person in Hong Kong or used for any purpose in Hong Kong other than in connection with the Shareholders‟ consideration of the In-Specie Distribution.

2. New Zealand

The MFF In-Specie Shares and MFF In-Specie Options are being offered to the Company‟s Shareholders with registered addresses in New Zealand in reliance on the Securities Act (Overseas Companies) Exemption Notice 2002 (New Zealand). This Explanatory Memorandum is not an investment statement or prospectus under New Zealand law, and may not contain all the information that an investment statement or prospectus under New Zealand law is required to contain.

This Explanatory Memorandum has not been registered, filed with or approved by any New Zealand regulatory authority under or in connection with the Securities Act 1978 (New Zealand).

3. Singapore

This Explanatory Memorandum has not been registered as a prospectus with the Monetary Authority of Singapore. This Explanatory Memorandum and any other document or material in connection with the offer, sale or distribution, or invitation for subscription, purchase or receipt of the MFF In-Specie Shares and MFF In-Specie Options may not be offered, sold or distributed, or be made the subject of an invitation for subscription, purchase or receipt, except pursuant to exemptions in Subdivision (4) Division 1, Part XIII of the Securities and Futures Act, Chapter 289 (the SFA ), or otherwise pursuant to, and in accordance with the conditions of, any other applicable provisions of the SFA.

Any offer is not made to you with a view to the MFF In-Specie Shares and MFF In-Specie Options being subsequently offered for sale to any other party. You are advised to acquaint yourself with the SFA provisions relating to on-sale restrictions in Singapore and comply accordingly.

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4. United Kingdom

The contents of this Explanatory Memorandum have not been reviewed by any regulatory authority in the United Kingdom ( UK ).

The distribution of the Explanatory Memorandum to persons in the UK shall not constitute an offer to the public in the UK of transferable securities to which the prospectus requirement under section 85 of the Financial Services and Markets Act 2000 applies. The Explanatory Memorandum shall be made available to fewer than 150 persons in the UK.

Any invitation or inducement to engage in investment activity (within the meaning of s.21 of the Financial Services and Markets Act 2000 as amended ( FSMA )) in connection with the distribution of the MFF In-Specie Shares and MFF In-Specie Options has only been communicated, and will only be communicated, in the United Kingdom in circumstances in which s.21(1) FSMA does not apply to the Company or MFF.

In the United Kingdom, this Explanatory Memorandum is permitted to be distributed within applicable exemptions in the FSMA (Financial Promotion) Order 2005 ( FPO ) including on the grounds that this Explanatory Memorandum is permitted to be distributed by the ASX Listing Rules.

5. United States of America

This Explanatory Memorandum is not for distribution, directly or indirectly, in the United States ( US ). This Explanatory Memorandum is neither an offer to sell nor a solicitation of an offer to buy securities as those terms are defined under the US Securities Act of 1933, as amended (the US Securities Act ). The MFF In-Specie Shares and MFF In-Specie Options to be transferred under the In-Specie Distribution have not been and will not be registered under the US Securities Act and may not be offered, sold or resold in, or to persons in, the United States except pursuant to registration or in accordance with an available exemption from registration under the US Securities Act.

None of the US Securities and Exchange Commission, any US state securities commission or any other US regulatory authority has passed comment upon or endorsed the merits of the In-Specie Distribution or the accuracy, adequacy or completeness of this Explanatory Memorandum. Any representation to the contrary may be a criminal offence.

6. Canada

This Explanatory Memorandum describes the trade of the MFF In-Specie Shares and MFF In-Specie Options only in the Province of Ontario ( Province ). This document is not, and under no circumstances is to be construed as, an advertisement or a public offering of the MFF In-Specie Shares and MFF In-Specie Options in the Province.

No securities commission or similar authority in the Province has reviewed or in any way passed upon this document or the issuance of the MFF In-Specie Shares and MFF In-Specie Options and any representation to the contrary is an offence.

No Canadian prospectus has been, will be, or is required to be, filed in the Province with respect to the issuance of the MFF In-Specie Shares and MFF In-Specie Options or the resale of such securities. Any person in the Province lawfully participating in the In-Specie Distrinution will not receive the information, legal rights or protections that would be afforded had a prospectus been filed and receipted by the securities regulator in the Province.

Furthermore, any resale of the MFF In-Specie Shares and MFF In-Specie Options in the Province must be made in accordance with applicable Canadian securities laws which may require resales to be made through a locally registered dealer and pursuant to prospectus requirements or in accordance with exemptions from dealer registration and prospectus requirements.

Upon receipt of this document, each investor in Canada hereby confirms that it has expressly requested that all documents evidencing or relating in any way to the sale of the MFF In-Specie Shares and MFF In-Specie Options (including for greater certainty any purchase confirmation or any notice) be drawn up in the English language only. Par la réception de ce document, chaque investisseur canadien confirme par les présentes qu il a expressément exigé que tous les documents faisant foi ou se rapportant de quelque manière que ce soit à la vente des valeurs mobilières décrites aux présentes (incluant, pour plus de certitude, toute confirmation d‟achat ou tout avis) soient rédigés en anglais seulement.

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7. Malaysia

As the approval of the Malaysian Securities Commission pursuant to Section 212 of the Malaysian Capital Markets and Services Act 2007 has not been and will not be obtained nor will this Explanatory Memorandum be lodged or registered with the Malaysian Securities Commission, the MFF In-Specie Shares and MFF In-Specie Options are not being offered and will not be deemed to be issued, made available, offered for subscription or purchase in Malaysia and neither this Explanatory Memorandum nor any document or other materials in connection therewith should be distributed, caused to be distributed or circulated in Malaysia. Any Shareholders resident in Malaysia will not receive any of the MFF In-Specie Shares and MFF In-Specie Options and instead will receive cash..

8. Barbados

This Explanatory Memorandum is not a prospectus or an offer of securities to the public. The MFF InSpecie Shares and MFF In-Specie Options may not be offered or sold to the public in Barbados. The Registrar of Corporate Affairs and Intellectual Property and the Financial Services Commission take no responsibility as to the validity or the veracity of the contents of the Explanatory Memorandum. The Financial Services Commission has not in any way evaluated the merits of the MFF In-Specie Shares and MFF In-Specie Options to be offered to Shareholders of MFG and any representation to the contrary is an offence. Shareholders resident in Barbados should also ensure that they comply with applicable requirements of Barbados law for foreign investments.

9.

Papua New Guinea

This Explanatory Memorandum is not an offer to the public in Papua New Guinea ( PNG ) of MFF InSpecie Shares or MFF In-Specie Options, and it has not been registered with the Securities Commission of Papua New Guinea. The MFF In-Specie Shares and MFF In-Specie Options may only be offered in PNG in reliance upon exceptions set out in the PNG Securities Act 1997.

10. South Africa

Shareholders resident in South Africa ( South African Shareholders ) are advised that the In-Specie Distribution described in this Explanatory Memorandum does not constitute an „offer to the public‟ as contemplated in section 95(1)(h) read with section 95(1)(g) of the Companies Act No 71 of 2008 ( SA Companies Act ). Given that the In-Specie Distribution is not an „offer to the public‟ under South African law, this Explanatory Memorandum may not (and need not) set out all the information that one would expect to find in a prospectus prepared in accordance with section 100 or section 101 of the SA Companies Act (and this Explanatory Memorandum and the In-Specie Distribution may not comply with Chapter 4 of the SA Companies Act generally). This Explanatory Memorandum has not been reviewed by, registered or filed with, any South African regulatory authority.

If a South African Shareholder expects to participate in the In-Specie Distribution, such South African Shareholder is advised to acquaint itself with the provisions, and requirements, of the South African Exchange Control Regulations introduced in 1961 in terms of section 9 of the Currency and Exchanges Act No. 9 of 1933 (as amended) and the Orders and Rules made in terms of such South African Exchange Control Regulations (Exchange Control Regulations).

Each South African Shareholder is, in any event, advised to consult with a professional advisor and authorized dealer to determine, in relation to the Exchange Control Regulations, whether (i) any regulatory, governmental and/or other consents or approvals are required; or (ii) any other formalities (including reporting requirements) must be observed, in relation to such shareholder‟s participation in the In-Specie Distribution and the holding of the MFF In-Specie Shares and/or MFF In-Specie Options thereafter.

11.

Thailand

The offering of the MFF In-Specie Shares and MFF In-Specie Options in Thailand has not been approved or registered under the Securities and Exchange Act of Thailand ( Securities and Exchange Act ) and, accordingly, the MFF In-Specie Shares and MFF In-Specie Options cannot be, directly or indirectly, offered or sold to any person within Thailand other than to the existing Shareholders of MFG as part of the In-Specie Distribution, except in compliance with, the Thai Securities and Exchange Act and any other applicable laws and regulations in Thailand.

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