December 2006 Quarter

At a Glance Dear Shareholders Performance for 33 months Welcome to our December 2006 quarterly possess particularly for larger wealthier offshore to 31 December 2006 (since IPO) shareholders’ newsletter. We trust that you industry players as well as private equity buyers. enjoyed a safe and happy holiday season. We expect more of the same in 2007. Net Asset Value $2.0678 +114% Diluted Net The Board and Manager, Fisher Funds, are PORTFOLIO REVIEW Asset Value $1.5587 +61% pleased to report the following noteworthy Twelve of the 14 stocks in the portfolio showed Share Price $1.51 +51% milestones that were achieved during the share price gains during the quarter, with the Warrant Price $0.52 +52% December quarter. exceptions being Michael Hill (-3% including dividends) and Kidicorp (-7%). Their small Performance for the nine 1) The Net Asset Value (“NAV”) continued its declines took just 0.2% from the overall portfolio months to 31 December 2006 impressive upwards climb to more than gain. All of the increase in the NAV per share Net Asset Value +30% double the NAV at the time of listing. The came from gains in (+28%), Ryman Diluted Net Asset Value +20% NAV increased 30% over the past nine Healthcare (+22%), Freightways (+23%) and Share Price +35% months from $1.5888 at 31 March 2006 Pumpkin Patch (+16%). Software of Excellence Warrant Price +117% to $2.0678 at 31 December 2006; recorded the largest gain of the quarter, +41%, 2) The discount of the share price to the diluted although our small holding meant its contribution NAV was 3.1% at the end of the quarter. was modest. Mainfreight’s 43% increase in Dec Quarter Share Price Gains This level of discount has steadily reduced interim earnings exceeded expectations and the (including Dividends) from 13.8% at 31 March 2006. The current stock was further re-rated when management Mainfreight +28% share price more closely reflects the gains suggested that 2007 earnings could grow by the Freightways +23% in the Kingfish NAV achieved to date. (This same extent. The possibility of an acquisition +22% is discussed in greater detail later in this in the USA did not dampen the market’s Pumpkin Patch +16% update); enthusiasm. In fact we are delighted that Software of Excellence +41% 3) Kingfish shares and warrants traded at an the management team plans to expand the all time high during the quarter. Kingfish company’s presence so materially outside NZ. If Recent Portfolio changes shares reaching $1.55 and warrants $0.52; successful, significant earnings growth may be 4) Our September 2006 Interim Report was possible. Ryman Healthcare delivered another Rakon increased published; six months of double-digit earnings growth Comvita increased 5) The Board announced on 1 November and pointed out that earnings in future years 2006 the continuation of the Kingfish share would be boosted by the contemporaneous Portfolio Holdings at 31 and warrant buyback in accordance with marketing of three new villages now underway. December 2006 section 65 of The Companies Act 1993. At Freightways’ share price gains were harder to 31 December 2006 the balance of treasury explain as there was little company specific Kingfish Holdings stock remained at 956,561 shares. During news other than management comments that Limited: Weightings the December quarter 1,421,159 warrants activity in September looked to be a little better Ryman Healthcare 20.9% were acquired at a cost of $511,541 and than in previous (tough) months. The Pumpkin Mainfreight 18.8% subsequently cancelled. Patch share price reflected investor optimism on Pumpkin Patch 11.2% the back of promising international expansion 10.9% We look forward to the remainder of the 2007 opportunities about which management appears Freightways 10.8% year with confidence and we thank you for to be increasingly positive. So overall, a healthy Michael Hill 6.6% your continued support. quarter for the Kingfish portfolio with some good news and positive developments from core (Holdings owns the core portfolio of holdings. companies that are expected to be owned for many years) Rob Challinor PORTFOLIO CHANGES Chairman There was very little activity in the portfolio in the Kingfish Nursery Limited: 16% Kingfish Limited - 12 January 2007 past quarter with most of the action occurring • Delegat’s in the middle of the year as we looked to • Rakon FISHER FUNDS QUARTERLY REVIEW redeploy the Waste Management (takeover) • Cadmus Technology The December 2006 quarter was very positive proceeds in to Delegat’s and Rakon. With that • Comvita for the share market with reinvestment largely done, our transaction • Kidicorp the NZSX50 Index gaining some 12%. The activity was limited to topping-up the Rakon buoyancy might seem surprising given high • NZ Exchange holding and underpinning a capital raising by and increasing domestic rates, the stubbornly • Software of Excellence Nursery stock, Comvita. It raised approximately high NZ-dollar and mediocre growth outlook. $12m to fund further development of its unique Unlisted investments 0.6% The 12% gain was around half of the index’s manuka-honey-based products and expand its total increase for the full year. Telecom’s presence internationally. We also purchased Cash: 4.2% recovery and ’s re-rating were a modest holding in a non-listed private the primary drivers. The potential privatisation equity company which invests in established (Nursery owns shares in companies of The Warehouse and subsequent positioning companies with a view to working alongside that have not yet met all Investment of interested corporate acquirers highlighted incumbent shareholders / management to criteria to become a core holding) the attractiveness that certain NZ companies facilitate expansion. Performance (31 DEC 2006) One Month Three Months One Year Since Inception o How do you decide if and when to exercise your warrants; and Kingfish NAV 4.0% 12.0% 53.1% 113.5% o What to do if you wish to exercise your 90 Day Bank Bill Index +7% p.a. 1.2% 3.7% 14.7% 40.7% warrants on 31 March 2007. Difference 2.8% 8.3% 38.4% 72.8% Taxation of Domestic NZSX Small Cap Index (NZSCI) 1.9% 9.1% 22.9% Update49.4% investment funds – “PIE regime” NZSX Mid Cap Index (NZSEMC) 5.8% 12.7% 39.2% 61.6% The Government has recently introduced NZSX 50 Gross Index (NZ50G) 5.0% 13.0% 20.3% 66.2% legislation which changes the way managed ASM KEY DISCUSSION POINTS RELATIVE PERFORMANCE TO 30 fundsJUNE are 2005 taxed. The intent behind the At whatKingfish level of NAVNet Asset discount Value, to Share and Warrant Price Performance changes is to remove any tax obstacles to $2.20December 2004 Quarter One those Three investing in Twelve managed funds Since and leave share price wouldKFL + KFLWA Kingfish Price consider Month Months Months Inception $2.20 investors in the same tax position whether a$2.00 share buy back?KFL NAV+ KFLWA Price Kingfish NAV (Start Date 31 March 04) 4.67%they -5.50% invest in equities18.48% directly 25.84% or via a $2.00 KFL PriceNAV managed fund. The$1.80 shares of a Listed Investment Company (LIC)KFL Pricesuch as Kingfish may 90 Day Bank Bill Index +7%pa 1.14% 3.47% 13.82% 17.12% $1.80 alternate$1.60 trading between a premium or Difference 3.53%Fisher -8.97% Funds has actively4.66% lobbied 8.72% for listed investment vehicles, such as Kingfish, to be discount$1.60 to NAV. The Kingfish capital management$1.40 policy as disclosed in the part of the new tax regime. Based on an initial review of the legislation, Fisher Funds believes prospectus$1.40 states that “if in the opinion Net Asset Value Performance $1.20 it is likely that Kingfish will meet the eligibility of the Board the value of the shares and $1.20 Since Inceptioncriteria to be Vs a “portfolio Relevant investment Indices entity”. The warrants$1.00 do not appropriately reflect the new regime commences in 1 October 2007. underlying$1.00 asset value the board will from Kingfish NZ50G NZSCI NZSEMC time$0.80 to time consider buying shares and Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Although the implications for investors warrants$0.80 in Kingfish. Any decision by the Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 in Kingfish will depend on their personal Board to acquire shares or warrants will 40 circumstances, it is likely that many consider other KFLWAinvestment Warrant Price alternatives shareholders will benefit: and$0.60 whether the acquisition is in the best • Under the current regime, Kingfish derives $0.50 KFLWA Warrant Price $0.60 interest$0.40 of the shareholders”. The Kingfish 35 imputation credits which can be passed $0.50 Board$0.30 will most likely consider a buyback onto investors. Under the new regime, $0.40 $0.20 there will be greater scope for Kingfish to programme$0.30 when it believes the discount $0.10 pay effectively an unimputed dividend to to$0.20 beMar-04 extreme,Jun-04 S ep-0 or4 greater Dec-04 M ar-0 than5 Jun-0 the5 Sep-0530 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 discount$0.10 ranges prevalent in similar investors without creating further tax at Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 investment vehicles. If a decision is the investor level (this cannot currently be FISHER FUNDS OUTLOOK Points of Interest made in relation to a buy back then done). We remain very comfortable with the The25 Discount to NAV per share Kingfish is required to advise the market • Investors currently on a 39% marginal tax composition of the Kingfish portfolio. We think The Kingfish Board and Fisher Funds are in advance. The Board expects that an rate will have their tax liability on Kingfish the long-term growth prospects for our core delighted that the combination of the on- dividends capped at 33%. upward trend in the underlying NAV over holdings are very exciting. As we have said going20 share and warrant buyback programme, • From 1 October 2007, all equity gains time should usually be enough to minimize over the past few years we think our stock continued strong returns and growth in NAV derived by the Kingfish group (assuming anyselection discount process to has NAV. resulted in a portfolio of per share, along with increasing investor shares are New Zealand or Australian listed robust companies with growth opportunities awareness15 of the value of the Kingfish companies) will be on capital account for that are not reliant upon the fortunes of the portfolio, has resulted in the share price now tax purposes. This will simplify the legal TheNZ economy. level and By definition criteria if for we thedo select the efficiently tracking diluted NAV per share. and reporting structure of the group. Manager’sright growth companieseligibility and for theythe succeed, (The10 diluted NAV describes the effect if all • The new tax regime will allow capital gains Performancetheir plans will takefee them outside NZ and warrants in existence were exercised today to be distributed tax free from Kingfish to at some point, the characteristics of the NZ at $1.00). investors. This cannot be done under the Fisher Funds is entitled to a performance economy will become less relevant. We like 5 existing tax regime. feethe for international generating flavour returns of in excessthe portfolio, of a Warrant exercise date 31 benchmarkand look forward rate. The to watchingbenchmark companies rate for March 2007 This does not constitute tax advice to thelike yearPumpkin ended Patch 31 andMarch Michael 2005 Hill was continue 13.4% 31 March 2007 is the second optional investors, as tax implications will depend on to open new stores in new markets. Rakon exercise0 date for Kingfish warrants (KFLWA). The actual return achieved by Fisher Funds Apr-04 Jun-04 Aug-04 Oct-04each Dec-04 investor’s Feb-05 tax profile. Apr-05 We Jun-05 encourage wasand 36.4%, Delegat’s Fisher are Funds already was international therefore If you wish to exercise some or all of your shareholders to seek their own tax advice. entitledcompanies to with receive outstanding 15% of growth this “excess” options. warrants (subject to a minimum of 500) on return.The domestic The feecompanies became within payable the onceportfolio the this exercise date please read the warrant NAVhave theirper ownshare strategies exceeded to prosper, $1.33. whether This exercise letter and complete the exercise it’s Ryman Healthcare which is securing land form that will be sent to warrant holders in What’s coming up: occurred at various dates in the first WHAT’S COMING UP: and developing villages at a rapid rate or February 2007. quarter of 2005. The base NAV for the • Second optional warrant exercise Freightways that is gradually building up an Interim Report – Oct 05 date - 31 March 2007 currentAustralian year data becomes and document $1.32 management (being the Any warrants not exercised on this date may • 31 March 2007 full year highestoperation. NAV In per summary, share previously we remain achieved positive be Theexercised Kingfish on the Update final exercise Report datewill ofbe 31 If you would like to receive an preliminary result - May 2007 atabout the theend prospects of any previous for the Kingfish financial portfolio year). Marchproduced 2008. Any for warrantsthe December not exercised and June by 31 emailed copy of the monthly Fisher • Final Dividend declared - May 2007 inA the performance year ahead. fee will not become Marchquarters. 2008 will lapseThe andAnnual all rights Report in regards and Funds newsletter please register • Annual Report for 31 March payable again until the Manager achieves to themInterim will expire.Report Kingfish will be warrantsproduced may in be your email address at 2007 year - June 2007 an increase in NAV in any year that tradedthe atinterim any time periods. on the NZSX up until the [email protected] • Annual Shareholders exceeds the benchmark return and the final exercise date of 31 March 2008. Meeting - July 2007 NAV exceeds $1.32. The Board believes A copy of the Fisher Funds monthly Thenewsletter Kingfish website “Fromwww.kingfishlimited. the Undergrowth” that this structure is appropriate and The Kingfish Update Report will be co.nzis available contains on details the Kingfish on the website following compares favourably with other fund produced for the December and June Carmel Fisher warrant(www.kingfishlimited.co.nz) related information under under the managers in Australasia and that it quarters. The Annual and Interim Reports Managing Director “Shareholderthe Shareholder Services” section;Reports section. correctly incentivises the Manager to will be produced for the March and Fisher Funds Management Limited o The choices that you have in relation to achieve a competitive return for Kingfish September periods. shareholders.12 January 2007 your warrants;

Kingfish Limited Phone +64 9 489 7094 Fax +64 9 489 7139 P O Box 33 549 Takapuna , New Zealand email: [email protected] www.kingfishlimited.co.nz The Information and any opinions herein are based on sources believed reliable, but the writer makes no representations as to its accuracy or completeness. All opinions reflect the writer’s judgement on the date of this report and are subject to change without notice.