Australian Foundation Investment Company


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		Frequently Asked Questions

Frequently Asked Questions


	What Is The Tax Position When Investing In AFIC?
	What Is The Role Of The Board?
	What Is The Role Of The Investment Committee?
	How Does The Trading Account Differ From The Investment Account?
	How Does AFIC Make Its Investment Decisions?
	What iIs AFIC’s Relationship With Goldman Sachs JBWere?

What Is The Tax Position When Investing In AFIC?

One of the Company’s key objectives is its intention to pay shareholders dividends which grow faster than inflation in the medium term. Since the introduction of the system of imputation all of AFIC’s dividends to date have been fully franked, potentially enabling shareholders to offset the franking credits received against their own income. Recent changes to the imputation system also allow refund of franking credits to shareholders whose marginal tax rate is less than the Company tax rate.

Further, since AFIC meets the definition of a Listed Investment Company for tax purposes, it is also able to pass through to shareholders tax benefits when available in respect of capital gains which the Company makes on securities held more than one year. The effect of these tax benefits is to potentially put the shareholder in the same position as if they had sold these assets personally so that half of the capital gain would be tax free.

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What Is The Role Of The Board?

The role of the Board of Directors is to set goals and policies for the operation of the Company, to oversee the Company’s management, to regularly review performance and to generally monitor the Company’s affairs in the best interests of its shareholders. For these responsibilities, the Board is accountable to its shareholders.

The Board has appointed a small staff under the leadership of the Managing Director to take responsibility for administering the Company’s affairs in conformity with its goals and policies. The Managing Director is responsible and accountable to the Board for the Company’s management.

The Board has been supervising the Company to meet its primary performance aims:
	to pay dividends which, over time, will grow faster than inflation; and
	to provide attractive total returns over the medium to long term.

The Board comprises a non-executive Chairman, Managing Director and six non-executive directors, all of whom have a personal financial interest in the Company.

Of the seven non-executive directors, for corporate governance purposes the Board considers that five should be regarded as independent. B B Teele has been a director of the Company since 1966 and is considered a non-independent director because he has a continuing involvement in the management of the Company. T A Campbell is considered a non-independent director because of the significance of the related party transactions with Goldman Sachs JBWere of which he is Senior Chairman, an employee and shareholder. The directors meet formally as a Board at least 11 times per year. Additional commitment of time is also required for the various Committee activities.

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What Is The Role Of The Investment Committee?

The Investment Committee comprises eight directors, B B Teele (Chairman), D R Argus, R E Barker, T A Campbell, J Paterson, F D Ryan, S D M Wallis and C M Walter. The Investment Committee approves all investment orders and transactions, trading portfolio share and option transactions, reviews the performance of investments, sets investment policies, reviews sub-underwriting offers and deals with other portfolio related activities such as voting instructions and lodgement of proxies. The Committee meets regularly (normally weekly).

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How Does The Trading Account Differ From The Investment Account?

AFIC’s primary objectives are to grow dividends at a faster rate than inflation and provide shareholders with capital growth over the medium to long term. The investments which it makes to try and meet these objectives are held in the Company’s investment portfolio. However, we also have a small trading account to enable the Company to take advantage of short-term opportunities that may arise and particularly the ability to sell call options against positions with the intention of generating further income for our shareholders.

The Board’s policy is that the trading account should be no more than 10% of the Company’s total portfolio and depending on the market environment can be significantly lower than this.

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How Does AFIC Make Its Investment Decisions?

The Company’s investment decisions are driven primarily by the decisions made by the Investment Committee, which usually meets weekly. An in house dealing team works in close consultation with our Chairman and Managing Director undertakes the day to day management of the Company’s portfolio and associated research with all transactions subject to review and oversight by the Investment Committee.

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What Is AFIC’s Relationship With Goldman Sachs JBWere?

AFIC commenced life in 1928 under the name of Were Investment Trust Limited. However, early on during its life it changed its name to Australian Foundation Investment Company Limited. Over the 79 years since its inception it has always maintained a close relationship with the JBWere & Son stockbroking partnership. To date the Chairman of AFIC has always been the then current or immediate past senior partner/chairman of the JBWere Group. Other JBWere partners and/or former partners have been on the Company’s Board, although for many years there has been a majority of independent directors on the Board.

Over many years JBWere has provided dealing and research input to the Company’s activities. The Company's IT facilities are provided through an agreement with Goldman Sachs JBWere.

In September 2003 the JBWere Group went into a joint venture with Goldman Sachs in respect of the Australian operations of Goldman Sachs. As a result, it is expected over time that the relationship with the new joint venture company, Goldman Sachs JBWere, will evolve as AFIC takes in-house activities which had previously been provided by the firm.

The close relationship between the Company and JBWere in the past has meant that a significant proportion of the transactions undertaken by the Company were done through JBWere, although for many years we have maintained relationships with most of the Australian brokers.

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