Sydney, Sept 30, 2008 (ABN Newswire) - Shareholders in Australian Foundation Investment Company (AFI) were not given much in the way of optimism at the 2008 annual meeting in Melbourne yesterday, but in view of the volatile state of financial markets, the sober approach was welcome.

Chairman, Bruce Teele said in his presentation to the AGM that markets remained nervous about the flow-on effects of the US slow-down on the global economy.

"Australia has two distinct economies (resources, agriculture versus the rest), the corporate earnings outlook is subdued and there had been a "significant' change in earnings expectations, downwards,"he said in his presentation to the meeting.

"Some balance sheets under pressure - and there was the potential for new capital issues."

Mr Teele said that financial stocks were being hit by concerns about global financial system arising out of US sub prime problems.

And he said this was showing up in the way "deleveraging was impacting the value of financial and physical assets".
This in turn was showing up in the way investors were avoiding companies with "complex structures and/or are highly leveraged".

"AFIC has cash, but at this stage is a patient investor," Mr. Telex said. But he said trying to pick the bottom of the market is difficult.

Also confronting investors as hangovers from the 2008 financial year were higher inflation, higher interest rates & borrowing costs, awareness of risk and need to minimize that risk.

But Mr Teele said that for patient investors like AFIC, there was some upside in the shape of increased takeover activity and a positive long term outlook for resources and energy sectors.

Major purchases, including transfers from the trading portfolio from July 1 to the end of August included: Telstra Corporation $15.8 million , Alumina (rights issue) $9.0m, National Australia Bank $8.3m, Orica (rights issue) $6.3m, Woodside Petroleum $5.8m, Queensland Gas $4.8m, Transurban Group $3.5m, QBE Insurance Group $2.4m, Westpac Banking Corp $1.4m, Iluka Resources (new to the portfolio) $1.1 million

The company revealed that Terry Campbell, a long time JBWere broker and successor to Mr Teele at the firm, had been named deputy chairman of AFIC.

Mr Teele is 71 years of age and would appear to be positioning Mr Campbell to replace him.

Mr Campbell has been a director of the company since 1984. He is Senior Chairman and former Chief Executive of Goldman Sachs JBWere and Chairman of Mirrabooka Investments Limited. Mr Campbell is also a Director of Djerriwarrh Investments Limited and AMCIL Limited, the trio of JBWere related investment companies, like AFI is.

AFI shares rose 7c to $5.02.

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