Challenger Financial Services Group Limited Financial Services Group Limited Interim Financial Report 2 Interim financial report for the half year ended 31 December 2009 Contents Page

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Challenger Financial Services Group Limited ACN 106 842 371

Challenger Financial Services Group Limited and its controlled entities

2010 INTERIM FINANCIAL REPORT AND APPENDIX 4D

Chal lenger F inanc ia l S erv i ces Group L im i ted In ter im F inanc ia l Repor t

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Appendix 4D Interim Financial Report for the half year ended 31 December Results for announcement made to market 1 2009

$M 2008

$M Change2

% Revenue from ordinary activities 911.7 928.7 (1.8) Net profit /(loss) from ordinary activities after tax attributable to members

176.7 (107.9) -

Net profit /(loss) for the period attributable to members 176.7 (107.9) - Normalised profit after tax and before investment experience and significant items for the half year ended 31 December 2009 increased by 9.4% to $115.9 million (31 December 2008 - $105.9 million).

Dividends 2009

Cents 2008

Cents Change

% Interim dividend - unfranked (2009: unfranked) (cents per share) 6.0 5.0 20.0 Record date for determining entitlements to be paid

24 March 2010 Payment date for dividend 16 April 2010 1 Per ASX Rule 4.2.C.3 2 Percentage change has not been provided when the previous corresponding period consisted of a net loss

Refer Appendix 1 ASX Appendix 4D on page 43 for disclosures required under ASX Listing Rules. This interim financial report covers Challenger Financial Services Group Limited (‘the Company’) and its controlled entities (‘the Group’). This report should be read in conjunction with the 31 December 2009 Interim Financial Report of the Group and any public announcements made in the period by the Group in accordance with the continuous disclosure requirements of the Corporations Act 2001 and the ASX listing rules. Except where otherwise stated, all figures relate to the half year ended 31 December 2009 and comparatives to the half year ended 31 December 2008.


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Interim financial report for the half year ended 31 December 2009 Contents Page

Directors’ report ...................................................................................................................................... 3 Financial report ....................................................................................................................................... 8 Consolidated income statement................................................................................................................9 Consolidated statement of comprehensive income ................................................................................10 Consolidated balance sheet....................................................................................................................11 Consolidated statement of changes in equity .........................................................................................12 Consolidated statement of cash flows ....................................................................................................13 Notes to the financial statements............................................................................................................14 Directors' declaration ........................................................................................................................... 39 Independent auditor’s review report................................................................................................... 40 Investor information ............................................................................................................................. 42 Appendix 1 – ASX Appendix 4D (rule 4.2A)........................................................................................ 43


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Directors’ report The Directors of Challenger Financial Services Group Limited (‘the Company’) submit their report together with the financial report of the Company and its controlled entities (‘the Group’), for the half year ended 31 December 2009.

1. Directors The names and details of the Company’s Directors holding office during the six months to 31 December 2009 and until the date of this report are as listed below. Directors were in office for this entire period unless otherwise stated.

Name Position Peter L Polson Independent Chairman Dominic J Stevens Chief Executive Officer and

Managing Director Thomas Barrack Jr Non Executive Director,

Independent Graham A Cubbin Non Executive Director,

Independent Russell R Hooper Non Executive Director,

Independent Leon Zwier Non Executive Director,

Independent Ashok P Jacob Non Executive Director –

resigned 8 September 2009 James D Packer Non Executive Director –

resigned 8 September 2009 Tetsuya Wada Non Executive Director –

resigned 17 September 2009

The composition of the Board of Directors has changed in the period. Following the sale of shares in the Company by Consolidated Press Holdings and Bank of Tokyo Mitsubishi, Mr James Packer, Mr Ashok Jacob and Mr Tetsuya Wada resigned from the Board. This means that, with the exception of the Managing Director, Dominic Stevens, all the Directors on the Board are independent. The reduction in director numbers from nine to six prompted a review of Board sufficiency. In order to provide a high standard of corporate governance, the Board must be adequately and appropriately resourced. This review concluded that the six remaining Directors were sufficient to discharge the Board’s various duties and obligations. Should the Board’s future workload or business conditions demand it, the Board will not hesitate to revisit this decision.

2. Operating and financial review The six months to 31 December 2009 has seen the gradual recovery in global debt and equity markets following the events of the global financial crisis which adversely impacted many participants in the Australian and global financial services sector during last financial year.

Challenger has emerged soundly and has participated in the global market recovery during the interim period, to now be in a strong financial position with a simpler and more focused business. The Group’s statutory profit after tax was $176.7 million for the six months ended 31 December 2009 which represents an increase of $284.6 million (264%) on the prior corresponding period (pcp). The Group reported a normalised profit after tax (excluding investment experience and significant items) of $115.9 million, up 9.4% ($10.0 million) on the pcp. This result was supported by normalised earnings before interest and tax (EBIT) of $158.2m (down 0.3%). Interest and borrowing costs were $11.9 million (down 30.8%) due to a combination of lower levels of debt and a lower average cost of debt. Major drivers of the changes in normalised profit after tax were improvements in the cash spread earnings generated by the Life division as a result of investments in higher yielding assets, including the purchase of the mortgage residual income units on 1 August 2009. Asset growth was underpinned by increased annuity sales during the period. The mortgage distribution business, plus approximately $4.5 billion of mortgages, was sold to National Australia Bank Limited (NAB) during the period, with the sale completing on 30 October 2009. The results of this business up to this date have been disclosed as discontinued operations in the financial report. While average funds under management for the Funds Management business rose as markets recovered and net fund inflows increased, particularly into our Boutique Partnerships, the change in asset class composition and margin of funds lead to decreased earnings for the period. Corporate expenses decreased during the period to a more normalised level after non-recurring restructure expenses in the year ended 30 June 2009.

Investment experience In any given reporting period, the actual investment gains (both realised and unrealised movements) will vary to the expected or normalised gains that may be expected to be realised over a longer term investment horizon. The resulting investment experience, net of the expected normalised gains, is reported separately when determining normalised profit for the Group. Investment experience gains of $61.3 million after tax were recognised for the six months ended 31 December 2009 (31 December 2008: loss of $213.8 million) arising from the recovery in global debt and equity markets during the period.


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2. Operating and financial review (continued)

1 ‘Net income’ and ‘Total operating expenses’ differ from ‘Revenue’ and ‘Expenses’ as disclosed in the financial report, as certain

direct costs including commissions and management fees are netted off against gross revenues in deriving ‘Net income’ above. These direct costs are classified as ‘Expenses’ in the financial report. In addition, the Special Purpose Vehicle revenues, expenses and finance costs disclosed in the financial report are netted off in ‘Net income’ above. These classifications have been made in the Directors’ Report disclosure, as it is considered that this presentation more closely reflects the key value drivers and core operations of the Challenger Group.

2 For the 4 months up to the sale of the business on 30 October 2009. Significant items An after tax loss of $0.5 million was recognised on the sale of the mortgage distribution business to NAB. Earnings per share As shown in the table below, on a normalised basis, basic earnings per share (eps) increased 17.2% to 21.8 cents and diluted eps increased 13.7% to 20.8 cents. Both the basic and diluted eps were positively impacted by the continuing on-market share buy-back, with 45.5 million shares having been repurchased over the six months to 31 December 2009 at an average price of $3.71 per share.

Earnings per share for the 6 months ended

31 Dec 2009 cents

31 Dec 2008 cents

Basic – normalised 21.8 18.6 Diluted – normalised 20.8 18.3 Basic – statutory 33.3 (18.9) Diluted – statutory 31.7 (18.7)

Key events during the half year On 30 October 2009, the Group sold its mortgage distribution business to NAB for a consideration of $383 million. In addition to the mortgage distribution legal entities, NAB acquired $4.5 billion of residential mortgages held in warehouses and the Group’s 41% stake in the listed mortgage origination company, Homeloans Limited. Of this 41%, the transfer of a 23% holding to NAB is still subject to a Homeloans Limited shareholder vote in March 2010 and, as a result the Group continues to own 23% of Homeloans Limited at 31 December 2009. The entitlement to the residual income units (RIUs) of the remaining residential mortgage loan special purpose vehicles (SPVs) not sold to NAB (backed by approximately $11 billion of mortgages) was sold from the Mortgage Management division to Challenger Life Company Limited (CLC) within the Life division.

Group financial summary Management analysis

31 Dec 2009 $M

31 Dec 2008 $M

Change %

Income1 Normalised cash operating earnings 154.1 121.5 26.8 Net fee income 113.0 158.6 (28.8) Other income 4.9 3.6 36.1

Net income 272.0 283.7 (4.1) Expenses1

Total operating expenses (113.8) (125.0) (9.0)

Normalised EBIT 158.2 158.7 (0.3) Interest and borrowing costs (11.9) (17.2) (30.8)

Normalised profit before tax 146.3 141.5 3.4 Tax (30.4) (35.6) (14.6)

Normalised profit after tax 115.9 105.9 9.4

Investment experience after tax 61.3 (213.8) Large Significant items after tax (0.5) - -

Statutory profit / (loss) after tax 176.7 (107.9) Large

Normalised EBIT represented by: Life 140.4 109.5 28.2 Funds Management 8.2 12.9 (36.4) Mortgage Management2 39.1 63.0 (37.9) Corporate (29.5) (26.7) 10.1

Normalised EBIT 158.2 158.7 (0.3)


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2. Operating and financial review (continued)

The transfer was completed on arm’s length, commercial terms for $558 million. The consideration paid reflected a value excluding any obligation for future trail commissions and amortisation of acquisition costs pertaining to the loan portfolio. Although no change to the net asset position of the Group has arisen, the transfer was cash settled and so increased the Group’s financial flexibility during this period. The proceeds from the sale of the mortgage distribution business and from the cash settlement of the RIUs transferred to CLC have been used to retire the Group’s major debt facilities/borrowings, consisting of the Medium Term Note, Net Interest Margin Bond and Corporate bank facility as outlined in Note 12 to the financial statements. The Group’s controlled entity, Challenger Diversified Property Group (CDI), announced a $130 million capital-raising on 6 August 2009 with a 4 for 7 pro-rata entitlement offer to eligible unitholders of CDI. The Group subscribed for its entitlement under the offer and its holding has increased from approximately 44.3% of the units prior to the issue to 46.3% as at 31 December 2009. The Funds Management division has seen positive funds flow, particularly into its Boutique Partnerships, and growth in assets under management during this period as global markets improved and the investment of cash held back during the time of financial uncertainty has begun to be reinvested. Capital position The Group’s capital position is managed at both the Group level and at the prudentially regulated CLC level with the objective of maintaining the financial stability of the Group and CLC whilst ensuring the shareholders earn an appropriate risk adjusted return through the optimisation of capital structures. Capital reserves above the regulatory minimum in CLC grew from an excess of $530 million at 30 June 2009 to approximately $850 million at 31 December 2009, supported by CLC’s increased underlying earnings during the period. The Company continued its on-market share buy back activity during the period and also received shareholder approval at the Annual General Meeting (AGM) on 12 November 2009 to buy back a further 56.9 million shares, effectively refreshing the ability of the Company to buy back up to 10% of its shares.

From the commencement of the program in July 2008 to the date of this report, a total of 90 million shares have been repurchased at an average price of $2.95. By reducing the number of shares on issue, the Board expects that the share buy back will be earnings per share accretive for shareholders.

3. Likely developments and expected results

Further information about likely developments in the operations of the Group and the expected results of those operations in future financial years have not been included in this report because disclosure of the information would be likely to result in unreasonable prejudice to the Group. Other than as disclosed in section 6 below, as at the date of this report no other matter or circumstance has arisen that has affected or may significantly affect: • the Group’s operations in future financial

years; • the results of those operations in future

financial years; or • the Group’s state of affairs in future financial

years.

4. Significant changes in the state of affairs

There were no significant changes to the state of affairs of the Group during the half year ended 31 December 2009, other than as outlined in section 1 and 2 above.

5. Dividends On 21 August 2009 the Directors of the Company declared a final dividend on ordinary shares in respect of the year ended 30 June 2009. The amount of the dividend was $43.8 million, which represented an unfranked dividend of 7.5 cents per share. This dividend was paid on 16 October 2009. On 19 February 2010, the Directors of the Company declared an interim dividend on ordinary shares in respect of the half year ended 31 December 2009. The amount of the interim dividend is $31.8 million, which represents a dividend of 6.0 cents per share from current period profits and will be unfranked (31 December 2008: 5.0 cents per share, unfranked). The dividend has not been provided for in the 31 December 2009 financial statements and is payable on 16 April 2010.


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6. Significant events after the balance date

On 28 January 2010 Challenger Kenedix Japan Trust (CKT) unitholders voted in favour of an offer from CLC to buy the remaining units in CKT that it did not already own for $1.05 per unit. This resulted in an additional 95% holding in CKT, taking CLC’s holding to 100%. Trading in CKT shares has been suspended on the ASX and the entity delisted on 9 February 2010. CKT will be consolidated by the Group for the 30 June 2010 reporting period. As a result of the transaction occurring at a discount to the fair value of the net assets of the trust, the Group will recognise a provisional pre-tax profit on acquisition of $106 million, net of transaction related expenses. Whilst the Group recognises that there may be future declines in Japanese property values over subsequent periods, all CKT properties were valued at 30 November 2009 by independent valuers and, given the current nature of these valuations, they are deemed to be the best approximation for determining fair value at the 28 January 2010 acquisition date.

Other than the above, no matter or circumstance has arisen since 31 December 2009 that has significantly affected, or may significantly affect: • the Group’s operations in future financial



years.

7. Rounding The amounts contained in the interim financial report have been rounded off to the nearest $100,000 under the option available to the Company under Australian Securities and Investments Commission (ASIC) Class Order 98/0100. The Company is an entity to which the class order applies.


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Financial report

Contents Page

Consolidated income statement 9 Consolidated statement of comprehensive income 10 Consolidated balance sheet 11 Consolidated statement of changes in equity 12 Consolidated statement of cash flows 13 Notes to the financial statements

1. Basis of preparation of the interim financial report 14 2. Segment information 16 3. Revenue 19 4. Expenses 20 5. Finance costs 20 6. Income tax 21 7. Dividends and distributions paid and proposed 22 8. Earnings per share 23 9. Financial assets 24 10. Investment properties 24 11. Goodwill 25 12. Interest bearing liabilities 26 13. Life contract liabilities 28 14. Special Purpose Vehicles 30 15. Contributed equity 32 16. Reserves 33 17. Reconciliation of operating cash flows 35 18. Discontinued operations 36 19. Significant transactions 37 20. Subsequent events 38 21. Contingent liabilities, contingent assets and credit commitments 38

Directors’ declaration 39


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Consolidated income statement For the half year ended 31 December 2009

31 Dec 2009 31 Dec 2008

Notes $M $M

Derived from operating activities

Revenue 3 911.7 928.7

Expenses 4 (347.0) (349.3)

Finance costs 5 (346.6) (764.0)

218.1 (184.6)

Share of profits of associates 0.1 -

Profit/(loss) from continuing operations before income tax 218.2 (184.6)

Income tax (expense)/benefit from continuing operations 6 (54.5) 58.8

Profit/(loss) from continuing operations after income tax 163.7 (125.8)

Profit/(loss) from discontinued operations after income tax 18 8.8 15.6

Profit/(loss) after income tax 172.5 (110.2)

Loss attributable to non-controlling interests 4.2 2.3

Profit/(loss) attributable to equity holders of the parent 176.7 (107.9)

Earnings per share from continuing operations:

Basic earnings per share 8 31.6 (21.6)

Diluted earnings per share 8 30.1 (21.3) Earnings per share from all operations:

Basic earnings per share 8 33.3 (18.9)

Diluted earnings per share 8 31.7 (18.7) The income statement should be read in conjunction with the accompanying notes.


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Consolidated statement of comprehensive income For the half year ended 31 December 2009

31 Dec 2009 31 Dec 2008

Notes $M $M

Profit/(loss) after income tax 172.5 (110.2)

Gain on translation of foreign operation 16 0.1 -

Cash flow hedge movements 16 (3.9) (57.2)

Unrealised gains on available for sale assets 16 2.0 4.7

Adjustment to holding in controlled entity 16 9.4 -

Other comprehensive income after income tax 7.6 (52.5)

Total comprehensive income after income tax 180.1 (162.7)

Attributable to:

Equity holders of the parent 184.3 (160.4) Non-controlling interests (4.2) (2.3) Total 180.1 (162.7) The statement of comprehensive income should be read in conjunction with the accompanying notes


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Consolidated balance sheet As at 31 December 2009

31 Dec 2009 30 June 2009 31 Dec 2008

Notes $M $M $M

Assets

Cash and cash equivalents 699.8 1,071.7 1,281.8

Cash and cash equivalents - SPV1 619.4 737.0 899.9

Receivables 142.1 582.4 552.3

Receivables - SPV 9,375.8 15,644.1 17,199.1

Current tax assets 2.1 2.7 2.8

Derivative assets 246.1 191.7 379.5

Financial assets fair valued through income statement 9 4,568.7 4,009.0 4,321.3

Available-for-sale assets 9 20.5 24.3 27.7

Investment property 10 1,845.5 2,020.5 2,073.9

Plant and equipment 49.7 56.8 61.5

Deferred tax assets - 52.2 73.1

Investments in associates 30.4 43.2 38.7

Other assets 65.2 92.4 153.6

Goodwill 11 498.8 688.7 696.7

Other intangible assets 17.6 21.1 26.8

Total assets 18,181.7 25,237.8 27,788.7

Liabilities

Payables 290.0 614.5 590.1

Derivative liabilities 170.3 164.5 139.5

Interest bearing liabilities 12 982.7 1,818.2 2,164.1

Interest bearing liabilities - SPV 12 9,833.1 16,310.2 17,947.1

External unitholders’ liabilities 19 541.2 - -

Provisions 51.6 52.9 49.4

Deferred tax liabilities 48.1 14.3 66.2

Life contract liabilities 13 4,564.8 4,573.8 5,166.8

Total liabilities 16,481.8 23,548.4 26,123.2

Net assets 1,699.9 1,689.4 1,665.5

Equity

Contributed equity 15 1,245.7 1,401.4 1,414.0

Reserves 16 170.9 167.9 126.7

Accumulated losses (54.5) (187.4) (174.9) Total equity attributable to equity holders of the parent 1,362.1 1,381.9 1,365.8

Non-controlling interests 337.8 307.5 299.7

Total equity 1,699.9 1,689.4 1,665.5

The balance sheet should be read in conjunction with the accompanying notes. 1 Special purpose vehicles (SPV)


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Consolidated statement of changes in equity For the half year ended 31 December 2009

31 Dec 2009 31 Dec 2008

Issued capital Notes $M $M

Opening balance at the beginning of the period 1,563.0 1,622.1

New shares issued - -

Net shares cancelled under share based payment plans (17.6) (17.3)

Shares purchased and cancelled under share buy back (168.4) (28.3)

Closing balance at the end of the period 15 1,377.0 1,576.5

Treasury shares

Opening balance at the beginning of the period (161.6) (159.7)

Shares purchased and held in trust, net of forfeitures (32.8) (25.2)

Vested shares released from the CPP Trust 39.8 22.0

Vested shares released from the Long Term Incentive Plan 23.3 0.4

Closing balance at the end of the period 15 (131.3) (162.5)

Total contributed equity 15 1,245.7 1,414.0

Reserves Opening balance at the beginning of the period 167.9 170.2 Currency translation differences 0.1 - Changes in cash flow hedges (3.9) (57.2) Changes in available-for-sale assets 2.0 5.4 Cost of share based payments (4.6) 8.3 Adjustment to holding in controlled entity 9.4 -

Closing balance at the end of the period 16 170.9 126.7

Retained (losses)/earnings Opening balance at the beginning of the period (187.4) (19.7) Profit/(loss) for the period 176.7 (107.9) Equity dividends (43.8) (47.3) Closing balance at the end of the period (54.5) (174.9)

Total 1,362.1 1,365.8

Non-controlling interests

Opening balance at the beginning of the period 307.5 17.1

Other non-controlling movements/distributions 55.7 9.9

(Loss)/profit for the period (4.2) (2.3)

(Deconsolidation)/consolidation of controlled entities (21.2) 275.0

Closing balance at the end of the period 337.8 299.7

Total equity 1,699.9 1,665.5


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Consolidated statement of cash flows For the half year ended 31 December 2009

31 Dec 2009 31 Dec 2008 Notes $M $M

Operating activities

Receipts from customers1 848.5 1,159.3

Annuities received 454.8 302.7

Annuities paid (626.3) (559.9)

Payments to vendors and employees1 (753.0) (1,115.9)

Dividends received 26.1 73.1

Interest received 153.2 146.2

Interest paid (46.5) (64.6)

Income tax paid - (3.3)

Net cash inflow/(outflow) from operating activities 17 56.8 (62.4)

Investing activities

Net (payments)/proceeds on sale/purchase of investments 174.3 (217.3)

Mortgages loans - advanced and purchased 14 (762.4) (4,907.4)

Mortgages loans - repaid and sold 14 6,771.1 6,534.9

Net proceeds from sale of controlled entities/significant transactions 423.6 482.0

Payments for purchase of plant and equipment (1.3) (5.2)

Net cash inflow from investing activities 6,605.3 1,887.0

Financing activities

Proceeds from interest bearing liabilities 1,281.4 4,526.2

Repayment of interest bearing liabilities (8,246.8) (5,826.7)

Payments on buy-back of shares/treasury shares (185.6) (53.5)

Proceeds from rights issue 50.9 -

Dividend paid (43.8) (47.3)

Distributions paid to non-controlling interests (7.7) -

Net cash outflow from financing activities (7,151.6) (1,401.3)

Net (decrease)/increase in cash and cash equivalents (489.5) 423.3

Cash and cash equivalents at the start of period 1,808.7 1,758.4

Cash and cash equivalents at the end of period 1,319.2 2,181.7

Cash 699.8 1,281.8

Cash - SPV 14 619.4 899.9

Cash and cash equivalents at the end of period 1,319.2 2,181.7 1 Inclusive of GST. The statement of cash flows should be read in conjunction with the accompanying notes.


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Notes to the financial statements

1. Basis of preparation of the interim financial report

This interim financial report of Challenger Financial Services Group Limited (‘the Company’) as at, and for the half year ended, 31 December 2009 comprises the Company and its subsidiaries (together referred to as ‘the Group’ or ‘the consolidated entity’) and the Group’s interest in associates. It was authorised for issue in accordance with a resolution of the Directors on 19 February 2010.

(i) Basis of preparation This general purpose interim financial report for the half year ended 31 December 2009 has been prepared in accordance with Accounting Standard AASB 134 Interim Financial Reporting, and the Corporations Act 2001.

The interim financial report does not include all the notes normally included in an annual financial report. Accordingly, it is recommended that this report be read in conjunction with the annual report for the financial year ended 30 June 2009 and any public announcements made by Challenger Financial Services Group Limited and its controlled entities during the half year in accordance with the continuous disclosure obligations arising under the Corporations Act 2001 and the ASX listing rules.

(ii) Significant accounting policies The accounting policies applied by the Group in this consolidated interim financial report are consistent with those applied by the Group in its consolidated financial report as at and for the year ended 30 June 2009 with the exception of the clarifications and new reporting standards issued and/or applied during the year, as outlined below.

Reinsurance The Group entered into a reinsurance arrangement during the period that meets the definition of a life insurance contract. The Margin on Services (MoS) methodology requires the present value of future cash flows arising from reinsurance contracts to be included in the calculation of life insurance contract liabilities. As a result, the life insurance contract liability included in the life contract liabilities on the 31 December 2009 balance sheet is stated net of the impacts of this reinsurance contract.

External unitholders’ liabilities Unit trusts will record unitholders’ contributed funds as either debt or equity, depending on the nature of the trust. Previously, all non-controlling interests in such entities were recorded in equity. The Group gained control over two new entities (Harris Global Sovereign Linked Bond Trust and Balloon Inflation Linked Bond Trust) during the period whose unitholders’ funds are classed as liabilities.

Upon consolidation the liability related to non-Group entities remain in the balance sheet as external unitholders’ liabilities.

New reporting standards issued or applied during the year The revised AASB 101 Presentation of Financial Statements and AASB 2007-8: Amendments to Australian Accounting Standards arising from AASB 101 were adopted for the first time during the period. These amendments require a ‘statement of comprehensive income’ to be included as a primary statement in the financial report.

Other than adjustments made for amendments to AASB 5 Non-current Assets Held for Sale and Discontinued Operations that resulted in minor disclosure impacts to Note 18, there are numerous amendments to Australian Accounting Standards that were available for early adoption, and applicable to the Group, but have not been applied in these financial statements. These amendments would have only resulted in minor disclosure impacts if they had been early adopted.

(iii) Significant accounting judgements, estimates and assumptions

The carrying amount of certain assets and liabilities are often determined based on estimates and assumptions of future events.

The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period are:

Share based payments The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the ordinary shares at the date at which they are granted.

The fair value is determined using the Black-Scholes formula, taking into account the terms and conditions upon which the equity instruments were granted. The fair value calculation is performed by an external valuer.

Policy liabilities Life insurance policyholder liabilities are accounted for under AASB 1038 Life Insurance Contracts.

Policy liabilities are measured at net present values of estimated future cash flows or, where the result would not be materially different, as the accumulated benefits available to policyholders.

Changes in policy liabilities for non-deposit business are recognised in the income statement as revenues and expenses in the financial year in which the changes occur.


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1. Basis of preparation of the interim financial report (continued)

A significant area of judgement is in the determination of policyholder liabilities, which involve actuarial assumptions. The areas of judgement where key actuarial assumptions are made in the determination of policyholder liabilities are: • business assumptions including: � duration of claims/policy payments; and � acquisition and maintenance expense

levels; and • economic assumptions for discount and

inflation rates.

The determination of assumptions relies on making judgements on variances from forecast assumptions. Where experience differs from forecast assumptions: • recent results may be a statistical aberration;

or • there may be changes in the underlying

experience requiring a change in the forecast assumptions. The Group’s actuaries arrive at conclusions regarding the statistical analysis using their experience and judgement.

Additional information on the policyholder liabilities is set out in Note 13 Life contract liabilities.

Property valuations Investment properties in Note 10 are stated at fair value, which has been determined based on valuations performed by independent valuers during the period ended 31 December 2009.

The Valuer or Valuation Practice are authorised to practise as a Valuer under the law of the relevant jurisdiction where the valuation takes place.

The Valuer performing the valuation has at least five years of continuous experience in the valuation of property of a similar type to the property being valued. Neither the Valuer, nor Valuation Practice, has a pecuniary interest that could conflict with the valuation of the property.

The Valuer and Valuation Practice comply with the Australian Property Institute (API) Code of Ethics and Rules of Conduct. Valuations are prepared on the basis of Market Value as defined by The International Assets Valuation Standards Committee (TIAVSC) and endorsed by the API.

Market value is the estimated amount for which an asset could exchange on the date of valuation between a willing buyer and willing seller in an arm’s length transaction wherein the parties had each acted knowledgeably, prudently and without compulsion.

In determining Market value, Valuers have examined available market evidence and applied this analysis to both the traditional capitalisation approach and discounted cash flow approach.

Interest bearing liabilities Subordinated debt is initially recognised at fair value and in subsequent periods is remeasured at fair value through the income statement. The determination of fair value includes the assessment of movements in interest rates, credit spreads and foreign exchange. These movements are reviewed at each reporting date to take into account market conditions.

Deferred tax assets Deferred tax assets are recognised for deductible temporary differences as management considers that it is probable that future taxable profits will be available to utilise those temporary differences. Factors considered include the ability to offset tax losses against taxable profits between members of the tax consolidated group within an appropriate future timeframe and whether the level of future taxable profits are expected to be sufficient to allow recovery of deferred tax assets.

Unlisted investment valuations Investments for which there is no active market or an external valuation available were valued: with reference to the current market value of another instrument that is substantially the same; via discounted cash flow analysis; and/or by other methods consistent with market best practice.

Impairment of goodwill The Group assesses whether goodwill is impaired at least annually. These calculations involve an estimation of the recoverable amount of the cash-generating units to which the goodwill is allocated.

(iv) Comparatives Where necessary, comparative figures have been reclassified to conform to the changes in presentation made in these financial statements.

As a result of the sale of part of the Mortgage Management division to National Australia Bank Limited (NAB) on 30 October 2009, revenue and expenses in the comparatives relating to the legal entities sold have been removed from revenue and expense comparatives and included in Note 18: Discontinued operations.

(v) Rounding of amounts The amounts contained in the interim financial report have been rounded off to the nearest hundred thousand dollars ($0.0M) under the option available to the Company under Australian Securities and Investments Commission (ASIC) Class Order 98/100. The Company is an entity to which the class order applies.

Chal lenger F inanc ia l Serv i ces Group L im i ted In ter im F inanc ia l Repor t

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2. Segment information Business segments The reporting segments of the Group have been identified as follows:

Reporting segments

Half year ended : Life Funds

Management Mortgage

Management2 Total reporting

segments Corporate and other 3 Total consolidated management view

$M 31 Dec

2009 31 Dec

2008 31 Dec

2009 31 Dec

2008 31 Dec

2009 31 Dec

2008 31 Dec

2009 31 Dec

2008 31 Dec

2009 31 Dec

2008 31 Dec

2009 31 Dec

2008 Management view1 Total segment revenue 154.2 121.5 48.5 62.2 65.6 99.0 268.3 282.7 3.8 1.0 272.1 283.7 Operating expenses (13.8) (12.0) (40.3) (49.3) (26.5) (36.0) (80.6) (97.3) (33.2) (27.7) (113.8) (125.0)

Normalised EBIT 140.4 109.5 8.2 12.9 39.1 63.0 187.7 185.4 (29.4) (26.7) 158.3 158.7 Interest and borrowing costs - - - - - - - - (11.9) (17.2) (11.9) (17.2) Normalised net profit/(loss) before tax, impairment, significant items and investment experience 140.4 109.5 8.2 12.9 39.1 63.0 187.7 185.4 (41.3) (43.9) 146.4 141.5 Investment experience 87.5 (305.4) - - - - 87.5 (305.4) - - 87.5 (305.4) Net profit/(loss) before tax 227.9 (195.9) 8.2 12.9 39.1 63.0 275.2 (120.0) (41.3) (43.9) 233.9 (163.9) Income tax (expense)/benefit (56.7) 56.0 Net profit/(loss)after tax 177.2 (107.9) Significant items after tax (0.5) - Net profit/(loss)after tax from all operations 176.7 (107.9) Segment assets 7,343.1 6,811.0 117.5 106.0 - 1,179.7 7,460.6 8,096.7 10,721.1 19,692.0 18,181.7 27,788.7 Segment liabilities (5,799.0) (5,982.2) (8.6) (19.9) - (522.6) (5,807.6) (6,524.7) (10,674.2) (19,598.5) (16,481.8) (26,123.2)

Net assets from all operations 1,544.1 828.8 108.9 86.1 - 657.1 1,653.0 1,572.0 46.9 93.5 1,699.9 1,665.5

1 Management view is as described in the Directors’ report as this presentation more closely reflects the key value drivers and core operations of the Group. 2 The Mortgage Management division was disposed of on 30 October 2009. It remained as a reported segment during the period to 31 December 2009. 3 Corporate and other includes Corporate, SPVs, CDI and group elimiations. 4 Intersegment transactions are at arm’s length.


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2. Segment information (continued)

(i) Operating segments The presentation of these results is the same as that provided to the chief operating decision maker as required under AASB 8. The Group operates in Life, Mortgage Management, Funds Management and Corporate segments. Life includes annuity and life insurance business carried out by Challenger Life Company Limited (CLC). CLC invests in assets providing long-term income streams for policyholders. The Mortgage Management segment is a white label funding provider for the commercial and residential mortgage lending market. The segment also distributes mortgages through ownership of broker aggregation platforms. This division was sold on 30 October 2009 so the segment only includes the results up to that date. Funds Management earns fees from its operations in the funds management and specialised funds fields, providing an end to end funds management business as well as managing four listed funds and a number of unlisted fund mandates. Corporate and other in the segment note includes the income and expenses incurred by the corporate division. Corporate and other also includes eliminations and non-core activities of the Group. Corporate expenses consist of costs that fall outside the day-to-day operations of Life, Mortgage Management and Funds Management. These costs include the costs of the Group CEO and CFO, shared services across the Company, directors' fees, corporate borrowings and associated borrowing costs and shareholder registry services for the Group.

(ii) Products and services The Group’s divisional segment split represents the products that the Group supplies. Life Challenger offers a fixed rate superannuation product and fixed rate retirement product that are both designed for investors who are seeking a low-risk investment for a known period of time and want to protect their capital.

Mortgage Management This division was sold on 30 October 2009 so the segment only includes the results up to that date. Challenger specialised in funding residential and commercial loans to borrowers in Australia and New Zealand. These loans were delivered through a vast network of accredited Preferred Lenders. The Preferred Lenders include mortgage originators, mortgage managers and other professionals who offer loans under their own branding to their clients. Funds Management Funds Management offers a range of managed investments across the major asset classes with funds in:

• Fixed interest and mortgage funds • Australian shares • Property funds • International share funds

(iii) Geographical areas The Group operates predominantly in Australia and so no geographical split is provided to the chief operating decision maker.

(iv) Major customers The Group does not rely on any major customer and so there is no concentration risk.

(v) Non-reportable segment reconciling items

Reconciling items in Corporate and other revenue includes interest income received by corporate entities. Reconciling items in Corporate and other includes expenses incurred by the corporate divisions not recharged, such as corporate division wages and salaries and depreciation costs. The assets of the Corporate and other segment are made up of corporate assets and group eliminations of -$76.6 million (2008: $655.8 million), SPV assets of $10,007.5 million (2008: $18,162.0 million), and CDI assets of $790.2 million (2008: $874.2 million). The liabilities of the Corporate and other segment are made up corporate liabilities and group eliminations of $489.6 million (2008: $994.6 million), SPV liabilities of $9,974.6 million (2008: $18,208.2 million), and CDI liabilities of $210.0 million (2008: $395.7 million).


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2. Segment information (continued) Half year ended

31 Dec 2009 31 Dec 2008

vi) Reconciliation of segment revenue to statutory revenue $M $M

Reportable segment revenue 268.3 282.7

Other revenue relating to CDI and Corporate function reported to management 3.8 1.0

Management view of revenue 1 272.1 283.7

SPV interest costs and fees offset against SPV income 305.6 690.9

Commission expenses offset against commission income 41.5 44.6

Amortisation of deferred portfolio and origination costs offset against mortgage fee income 22.3 39.3

Property related expenses offset against property income 25.1 9.9

Policyholder liabilities maintenance and expense offset against policyholder income 116.8 115.5

Realised and unrealised gains and (losses) recognised as investment experience 144.1 (236.5)

Normalised capital growth management assumptions (28.3) (34.0)

Interest expense on controlled property trusts offset against income for management reporting 18.3 18.1

Other expenses, other interest and impact of non-controlling interests offset against income for management reporting (5.8) (2.8)

Statutory revenue 911.7 928.7 vii) Reconciliation of segment profit to statutory profit/(loss) Reportable segment profit before tax 187.7 185.4

Other profit relating to CDI and loss relating to Corporate function reported to management (41.3) (43.9)

Management view of profit before tax 146.4 141.5

Investment experience2 87.5 (305.4)

Amounts relating to discontinued operations pre tax (15.7) (20.7)

Statutory profit/(loss) before tax 218.2 (184.6) viii) Intersegment transactions All intersegment transactions are at arm’s length. 1 ‘Net income’ and ‘Total operating expenses’ differ from ‘Revenue’ and ‘Expenses’ as disclosed in the financial report as certain

direct costs including commissions and management fees are netted off against gross revenues in deriving ‘Net income’ above. These direct costs are classified as ‘Expenses’ in the Financial Report. In addition, the Mortgage Management Special Purpose Vehicle revenues, expenses and finance costs disclosed in the financial report are netted off in Net income.

2 Investment experience is the realised and unrealised mark to market gains and losses on assets and liabilities. Investment experience is net of normalised capital growth.


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3. Revenue Half year ended

Derived from operating activities: 31 Dec 2009 31 Dec 20084

$M $M

Fees and other income

Management fee income 47.2 41.0

Fee income - SPV 18.2 21.0

Other income 3.5 3.1 Investment revenue

Equity and infrastructure investments1

Dividend income 16.8 47.5

Net realised losses on equity investments (9.6) (3.3)

Net unrealised gains/(losses) on equity investments 25.7 (78.5)

Net realised gains on infrastructure investments - 4.6

Net unrealised gains/(losses) on infrastructure investments 42.0 (122.2)

Debt assets and liabilities and cash

Interest income 148.2 138.9

Net realised gains/(losses) on debt assets 44.0 (87.2)

Net unrealised gains/(losses) on debt assets and liabilities2 143.7 (94.9)

Real estate investments

Dividend income 1.8 10.6

Property rental income 97.9 51.3

Net realised losses on real estate investments (0.5) (0.9)

Net unrealised losses on real estate investments (54.9) (98.4)

Discount on acquisition of controlled entities - 66.4

Other investments

Interest income - SPV 444.8 849.7

Impairment loss on financial assets available for sale - (0.7)

Net realised exchange gains/(losses) on foreign exchange translation and foreign currency hedges 132.4 (313.0)

Net unrealised (losses)/gains on foreign exchange translation and foreign currency hedges (86.6) 286.2

Net realised (losses)/gains on interest rate derivative assets and liabilities (0.8) 9.4

Net unrealised (losses)/gains on interest rate derivative assets and liabilities (56.5) 444.4

Other revenue

Policyholder liability adjustment losses 3 (30.3) (277.1)

Reinsurance contract liability adjustment losses (15.3) -

Gain on annuity book transfer - 30.8

Total 911.7 928.7 1 Infrastructure investments are designated as fair value through the income statement. 2 Includes fair value movement in subordinated debt (Note 12). 3 Policyholder liability movements from changes in interest rates, inflation rates, and valuation assumptions. Total change in

policy liabilities is equal to the policyholder liability adjustment (above) plus the cost of policyholder liabilities (Note 4). 4 2008 comparatives have been restated to remove revenue related to discontinued operations. For details see Note 18.


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4. Expenses Half year ended Derived from operating activities: 31 Dec 2009 31 Dec 20082

$M $M

Commission expenses 41.5 44.6 Amortisation of deferred portfolio and origination costs 22.3 39.3

Policyholder liabilities and maintenance expenses1 116.8 115.5

Property management expenses 25.1 9.9

Management fees 16.6 7.5

Fee expenses – SPV 16.1 3.8

Intangibles amortisation expense 1.4 3.0

Employee expenses 59.1 73.6

Employee share based payments 16.1 11.9

Superannuation 3.0 3.6

Depreciation expense 3.1 4.5

Communications 4.4 4.3

IT maintenance 1.5 2.0

Occupancy expense - operating lease 2.3 2.9

Professional fees 4.1 7.6

Other expenses 13.6 15.3

Total 347.0 349.3

1 Cost of policy liabilities is made up of interest expense on policy liabilities plus fair value adjustments to policy liabilities at policy acquisition, less release of liability in respect of expenses incurred in the current year. Interest expense on policy liabilities is calculated at rates that applied during the current year. Movement in policy liabilities due to changes in absolute value of interest rates is captured in Note 3 ‘Policy holder liability adjustment, (losses)/ gains’.

2 2008 comparatives have been restated to remove expenses related to discontinued operations. For details see Note 18.

5. Finance costs Half year ended 31 Dec 2009 31 Dec 20081 $M $M

Derived from operating activities:

Interest and loan amortisation expenses incurred by:

Special purpose vehicles 289.0 687.1

Other entities 28.3 52.7

Property trusts 18.3 18.1

Other finance costs 11.0 6.1

Total 346.6 764.0

1 2008 comparatives have been restated to remove finance costs related to discontinued operations. For details see Note 18.


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6. Income tax Major components of income tax expense are:

Half year ended 31 Dec 2009 31 Dec 20081 $M $M (a) Income tax (expense)/benefit analysis: Current income tax (expense)/benefit (26.6) 4.5 Deferred income tax (expense)/benefit (27.9) 54.3 Net income tax (expense)/benefit (54.5) 58.8 (b) Amounts recognised directly in equity: (4.5) (0.5) (c) Reconciliation of income tax (expense)/ benefit: Profit/(loss) from continuing operations before income tax 218.2 (184.6)

Prima facie income tax based on the Australian company tax rate of 30% (65.5) 55.4

Tax effect of amounts which are not deductible/assessable in calculating taxable income: Non-deductible/non-assessable items 14.8 (0.7) Rate differential on offshore income 2.6 - Prior year adjustments and other items (6.4) 4.1 11.0 3.4 Income tax (expense)/ benefit from continuing operations (54.5) 58.8 Tax losses Gross unused losses for which no deferred tax asset has been recognised 114.7 83.4

All available revenue losses have been recognised in the balance sheet at 31 December 2009 and 31 December 2008. 1 2008 comparatives have been restated to remove tax expense related to discontinued operations. For details see Note 18.


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7. Dividends and distributions paid and proposed

Half year ended

31 Dec 2009 31 Dec 2008

$M $M

a) Dividends declared and paid during the period

Final unfranked dividend for the financial year 30 June 2009: 7.5 cents (2008: 7.5 cents 60% franked) 43.8 47.3 b) Dividends proposed (not recognised as a liability as at 31 December)

Interim dividend for the financial year 30 June 2010: 6.0 cents (2009: 5.0 cents unfranked) 31.8 29.6 c) Dividend franking Dividends paid have been unfranked with a corresponding zero tax rate (30 June 2008: Paid dividends were franked at 60% with a tax rate of 18%). The interim dividend proposed will be unfranked (31 December 2008: unfranked).

d) Distributions paid or provided Distributions paid or provided represents amounts paid or payable to non-controlling interests of entities controlled by the Group.

Half year ended

31 Dec 2009 31 Dec 2008

$M $M

Distributions paid during the period to non-controlling interests 11.9 -

Distributions provided during the period to non-controlling interests 9.8 -

21.7 -


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8. Earnings per share The following reflects the income and share data used in the basic and diluted earnings per share computations:

Half year ended 31 Dec 2009 31 Dec 2008 From continuing operations: Cents Cents

Basic earnings per share 31.6 (21.6) Diluted earnings per share 30.1 (21.3) Total from all operations: Basic earnings per share 33.3 (18.9) Diluted earnings per share 31.7 (18.7) Earnings used in calculating earnings per share $M $M

For basic earnings per share: Profit/(loss) from continuing operations 167.9 (123.5) Profit/(loss) from discontinued operations 8.8 15.6 Net profit/(loss) attributable to ordinary shareholders for basic earnings per share 176.7 (107.9) For diluted earnings per share: Profit/(loss) from continuing operations 167.9 (107.9) Profit from discontinued operations 8.8 15.6

Profit/(loss) attributable to ordinary shareholders for diluted earnings per share 176.7 (107.9) Number of shares Number Number Weighted average number of ordinary shares for basic earnings per share 530,939,814 570,588,883 Effect of dilution: - dilutive impact of long term incentive (LTI) schemes 22,180,006 7,877,796 - dilutive impacts of external options 4,959,689 6,515 Adjusted weighted average number of ordinary shares for diluted earnings per share 558,079,509 578,473,194

The weighted average non-dilutive impacts of LTI scheme shares and external options over the period were 17.0 million and 57.5 million respectively. Since 31 December 2009, 14.0 million shares have been purchased and cancelled as part of the continuing on-market buy back. There have been no other transactions involving ordinary shares or potential ordinary shares since the reporting date and before the completion of these financial statements.


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9. Financial assets As at

31 Dec 2009 30 June 2009 31 Dec 2008

$M $M $M

(i) Financial assets fair valued through income statement

Debt investments held for trading

Bonds 1,266.6 1,039.3 852.2

Fixed interest notes 465.2 153.5 147.3

Floating rate notes 1,663.2 1,690.0 2,025.9

3,395.0 2,882.8 3,025.4

Equity investments held for trading

Shares in listed and unlisted corporations 142.3 154.5 63.6

Unlisted unit trusts and managed funds 137.0 86.8 229.8

Shares in listed corporations held in relation to endowment warrants 41.6 45.2 41.0

320.9 286.5 334.4

Infrastructure investments1

Shares in listed and unlisted trusts 669.1 653.8 767.5

669.1 653.8 767.5

Property investments

Indirect property investments in listed and unlisted trusts2 183.7 185.9 194.0

183.7 185.9 194.0 Total financial assets fair valued through the income statement 4,568.7 4,009.0 4,321.3

(ii) Available-for-sale assets

Other financial assets3 20.5 24.3 27.7

20.5 24.3 27.7

1 Infrastructure investments are designated as fair value through the income statement. 2 Indirect property investments include units held in listed and unlisted trusts and interest in joint ventures. 3 Impairment losses on available-for-sale assets were $nil for Dec 2009 (June 2009: $1.2 million loss, Dec 2008: $0.7 million

loss).

10. Investment property As at

31 Dec 2009 30 June 2009 31 Dec 2008 $M $M $M

Investment property

Investment property at fair value 1,732.2 1,892.4 1,967.4

Investment property under development at fair value 21.0 26.4 24.5

Development property at cost 92.3 101.7 82.0

Total investment property 1,845.5 2,020.5 2,073.9


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11. Goodwill

As at 31 Dec 2009 30 June 2009 31 Dec 2008 $M $M $M

Goodwill 498.8 688.7 696.7

Reconciliation of carrying amounts at the beginning and end of the period Opening balance 688.7 624.0 624.0

Acquisitions through business combinations - 57.6 72.0

Disposals (190.2) - -

Reappraisal of fair value of net assets acquired 2.5 (0.5) -

Increase or decrease in goodwill translation to closing rate (2.2) (0.5) (0.6)

Deferred acquisition costs - 8.1 1.3

Goodwill (net of accumulated impairment) 498.8 688.7 696.7

Description of the Group’s goodwill After initial recognition, goodwill acquired in a business combination is measured at cost less any accumulated impairment losses. Goodwill is not amortised but is subject to impairment testing on an annual basis or whenever there is an indication of impairment. The Group has carried out impairment testing in the period for all the cash generating units and no impairment has been identified. The discount rate used in the impairment testing was 11.5% (June 2009 12.0%).


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12. Interest bearing liabilities 31 Dec 2009 30 June 2009 31 Dec 2008

Outstanding Facility Outstanding Facility Outstanding Facility $M $M $M $M $M $M

Bank loans

Recourse

Corporate - 100.0 130.0 300.0 350.0 350.0

Non-recourse

Controlled property trusts 268.1 281.4 470.3 490.8 479.3 479.3

Controlled property trusts – CDI1 183.8 371.4 333.8 500.0 343.5 500.0

Repurchase arrangements - - 59.8 59.8 59.8 59.8

Total bank loans 451.9 752.8 993.9 1,350.6 1,232.6 1,389.1

Non-bank loans

Recourse

Medium term notes 30.1 30.1 206.0 206.0 250.0 250.0

Non-recourse

Controlled property trusts 7.0 7.0 7.0 7.0 7.1 7.1

Corporate - - 130.0 130.0 130.0 130.0

Loan note finance 59.7 59.7 62.5 62.5 62.1 62.1

Subordinated debt issuance 434.0 434.0 418.8 418.8 482.3 482.3

Total non-bank loans 530.8 530.8 824.3 824.3 931.5 931.5

Total interest bearing liabilities 982.7 1,283.6 1,818.2 2,174.9 2,164.1 2,320.6

Interest bearing liabilities-SPV2 9,833.1 9,833.1 16,310.2 17,485.1 17,947.1 19,521.5

Total interest bearing liabilities-SPV 9,833.1 9,833.1 16,310.2 17,485.1 17,947.1 19,521.5

1 On 31 December 2008, the Company acquired a controlling interest in the Challenger Diversified Property Group (CDI). 2 See Note 14 for more information on the SPV interest bearing liabilities retained in the SPVs post NAB transaction.


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12. Interest bearing liabilities (continued) (i) Bank loans Corporate The corporate bank facility amounting to $100 million is secured by cross guarantees in place between certain Group companies. A floating interest rate was applied to this facility during the year.

Controlled property trusts Bank loans in the wholly owned unlisted property trusts are secured solely by fixed and floating first mortgages over investment properties.

Controlled property trusts – CDI CDI has entered into a multi-option syndicated finance facility with Westpac Banking Corporation Limited (WBC) and Commonwealth Bank of Australia Limited (CBA). The loan facility comprises a non-recourse secured and unsecured component. A portion of the outstanding loan was repaid in the period.

In relation to the unsecured component, CDI has not granted security over its properties but provided a number of negative undertakings, including undertaking not to create or allow encumbrance over its properties.

The secured component relates to the funding of property acquisitions in France. Part of the funding for that acquisition was provided by WBC to CDI’s controlled entities in France and part of the funding was provided by WBC and CBA to Challenger Diversified Property Trust 1 (CDPT1). Security was granted by way of mortgages of shares in, and of debts between, entities established to acquire the French properties.

Repurchase arrangements The Group entered into repurchase agreements with the Reserve Bank of Australia (RBA) whereby a portfolio of debt securities were sold to the RBA for cash whilst simultaneously agreeing to repurchase the debt securities at a fixed price and fixed date in the future. These arrangements were interest bearing with interest paid on maturity. The maturity date of the repurchased amount outstanding was 15 December 2009 and they were repaid in full on that date.

(ii) Non-bank loans Medium term notes Challenger Treasury Limited issued $250 million of Australian dollar fixed rate medium term notes on 23 April 2007. The notes are secured by cross guarantees in place between certain Group companies. The notes are fixed at 7% and mature on 23 April 2010. During the period, $175.7 million of the medium term notes were bought back prior to maturity.

Controlled property trusts Non-bank loans in the wholly owned unlisted property trusts are secured solely by fixed and floating first mortgages over properties.

Corporate Working capital was raised via a Net Interest Margin Bond securitisation through the NIM Master Trust Series 2004-A2, 2004-A3 and 2006-A1. The facility is limited in its recourse to the manager to the extent of $1 and holds security over the residual incomes of all Australian securitised trusts. Interest is fixed and is payable monthly. This liability was repaid in October 2009.

Loan note finance CLC has entered into a restricted recourse £25 million loan that is secured by investment properties. The fixed rate interest applied will be capitalised and is expected to be repaid together with the principal in 2012 (but no later than 2015).

Subordinated debt issuance – CLC CLC issued A$400 million of subordinated notes into the US private placement market in November 2007.

The notes were issued under an APRA approved Instrument of Issue and, when issued, count as Approved Subordinated Debt for regulatory capital purposes. The notes are unsecured and will mature in 30 years with a non-call period of 10 years. CLC also issued US$150 million of subordinated notes into the US private placement market in December 2006.

These notes were also issued under an APRA approved Instrument of Issue and, when issued, count as Approved Subordinated Debt for regulatory capital purposes. The notes are unsecured and were issued in two maturities (US$125 million at 10 years with a non-call period of five years; and US$25 million at 20 years with a non-call period of 10 years). A portion of this subordinated debt has a fixed interest rate with the remaining portion being floating.

The proceeds from the issuance of both the November 2007 and the December 2006 notes were made available to Statutory Fund No. 2 of CLC. The repayment obligations and other liabilities of CLC in respect of the principal, interest and other amounts owing with respect to the notes are liabilities of, and referable to, Statutory Fund No. 2.

The notes rank in right of payment either pari passu with, or senior to, all other unsecured and subordinated indebtedness of CLC allocated to Statutory Fund No. 2, except for such indebtedness preferred by operation of bankruptcy laws or similar laws of general application.

After initial recognition, subordinated debt is measured at fair value through the income statement and adjusted for movements in interest rates, credit spreads and foreign exchange.


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13. Life contract liabilities Reconciliation of movements in life contract liabilities

Half year ended

Year ended

Half year ended

31 Dec

2009 30 June

2009 31 Dec

2008 $M $M $M Life investment contract liabilities Total life investment contract liabilities at beginning of period 3,964.4 3,663.4 3,663.4

Key movements in Statutory Funds: New business deposit & premiums recognised as an increase in policy liabilities 454.8 514.0 302.8

Policy withdrawals, payments and claims recognised as a decrease in policy liabilities (598.0) (1,137.6) (552.9)

Transfer under court approved Part 9 scheme of arrangement1 - 636.5 636.5 Policyholder liability adjustments 16.1 117.6 266.9

Cost of policyholder liabilities 100.4 171.5 110.0 Other movements (1.8) (1.0) (1.9)

Total life investment contract liabilities at end of period 3,935.9 3,964.4 4,424.8

Life insurance contract liabilities

Total life insurance contract liabilities at beginning of period 609.4 79.7 79.7

Key movements in Statutory Funds:

Policy withdrawals, payments and claims recognised as a decrease in policy liabilities (26.6) (33.0) (7.0)

Transfer under court approved Part 9 scheme of arrangement1 - 651.7 651.7

Policyholder liability adjustments 14.2 (108.0) 11.8

Cost of policyholder liabilities 16.4 19.2 5.5

Other movements 0.2 (0.2) 0.3

Total life contract liabilities at end of period 613.6 609.4 742.0

Total life reinsurance contract liabilities at beginning of period - - -

Reinsurance contract liability adjustment losses 15.3 - -

Total life reinsurance contract liabilities at end of period 15.3 - - Total life contract liabilities 4,564.8 4,573.8 5,166.9

1 Policy liabilities transferred to CLC on the acquisition of annuity portfolios from other insurance companies. In the prior year, Challenger acquired a $1.29 billion portfolio of business from the National Mutual Life Insurance Association of Australia Limited (AXA).


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13. Life contract liabilities (continued) (a) Assumptions and methodology

applied in the valuation of life insurance contract liabilities

Life insurance contract liabilities, and hence the net profit from life insurance contracts have been calculated using the Margin on Services (MoS) method in accordance with the requirements of Life Prudential Standard 1.04 “Valuation of Policy Liabilities” under section 114 of the Life Insurance Act 1995. The Prudential Standard requires the value of life insurance contracts to be calculated in a manner that allows for the systematic release of planned margins on services as services are provided to policyholders and premiums are received. Challenger maintains one policy type being individual annuities and utilises annuity payments as the profit carrier when calculating the value of life insurance contracts under the projection method. For full details of key assumptions used in the calculation of life insurance liabilities please refer to the Annual Report for the year ended 30 June 2009. (b) Impact of changes in assumptions Under MoS, for life insurance contracts valuations using the projection method, changes in actuarial assumptions are generally recognised by adjusting the value of future profit margins in life insurance contract liabilities. Future profit margins are generally released over future periods. Changes in actuarial assumptions do not include market related changes in discount rates such as changes in benchmark market yields caused by changes in investment markets and economic conditions. These are reflected in both life insurance contract liabilities and asset values at the balance date.

(c) Life insurance risk The Group is exposed to longevity risk on its insurance liabilities, the risk that annuitants may live longer than expectations implicit in liability calculations. The Group manages this risk in part by using reinsurance (ceding a portion of the risk) in addition to the regular review of the portfolio to confirm continued survivorship of annuitants receiving income; and regular review of mortality experience for the CLC portfolio to ensure that mortality assumptions remain appropriate. During the period CLC took out reinsurance to cover the longevity risk acquired during the 2009 acquisition of the National Mutual Life Insurance Association of Australia Limited (AXA) annuity book. (d) Insurance risk sensitivity analysis – life

insurance contracts For life insurance contracts which are accounted for under MoS, amounts of liabilities and associated income or expense recognised in the period are unlikely to be sensitive to changes in variables even if those changes may have an impact on future profit margins, unless that product is in loss recognition. (e) Restrictions on assets Investments held in the CLC funds can only be used within the restrictions imposed under the Life Insurance Act 1995. The main restrictions are that the assets in a fund can only be used to meet the liabilities and expenses of that fund, to acquire investments to further the business of the fund or as distributions when solvency and capital adequacy requirements are met. (f) Actuarial information Mr A Bofinger FIAA, as the Appointed Actuary of CLC, is satisfied as to the accuracy of the data used in the valuations of policy liabilities and solvency reserves in the interim financial report. The policy liabilities and solvency reserves have been determined at the reporting date in accordance with the Life Insurance Act 1995.


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14. Special Purpose Vehicles (SPV) Historically the Mortgage Management business established and serviced a number of Special purpose vehicles (SPVs) which fund pools of residential mortgage loans via the issuance of residential mortgage backed securities. All borrowings of the SPVs are limited in recourse to the assets of the SPVs. The sale of part of the mortgage division included approximately $4.5 billion of residential mortgages held in SPV trusts. The remaining residential mortgage vehicles were sold at arms length to CLC, which now has the entitlement to the residual income units. While the Group has neither ownership rights to the underlying mortgages nor any obligation or duty to repay any of the residential mortgage backed securities, the Group is required to consolidate all securitisation SPVs as a consequence of holding the beneficial interest to the residual income streams. This results in a gross up of assets and liabilities, separately disclosed as they are not considered part of the Group’s assets and liabilities from management’s perspective. Transactions between the SPV and CLC and/or Challenger Mortgage Management Pty Limited (an entity that remained in the Group after the sale) are eliminated on consolidation into Group in accordance with applicable accounting standards. There is no impact on total equity, other than for amounts reflected in a cash flow hedge reserve explained below, which has also been separately disclosed.

AASB 139 Financial Instruments: Recognition and Measurement requires all derivatives to be recognised on the balance sheet and measured at fair value. Gains and losses arising from changes in fair value will be recognised in the income statement, unless hedge accounting is applied. Where cash flow hedge accounting requirements are met, the carrying value of the hedged item is not adjusted, and the fair value changes on the related hedging instrument (to the extent that the hedge is effective) are deferred in the cash flow hedge reserve. This amount will then be transferred to the income statement at the time the hedged item affects the income statement. Ineffective hedges are recognised in the income statement immediately. The SPV’s exposures to interest rate and exchange rate risk are hedged using derivative financial instruments. All derivatives in the SPVs are designated as cash flow hedges, thereby protecting the Group’s income statement from significant volatility. The consolidated balance sheet and cash flow statement for the securitised SPVs are contained over the page.


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14. Special Purpose Vehicles (SPV) (continued) Balance sheet as at 31 Dec 2009 30 June 2009 31 Dec 2008 $M $M $M Assets - securitised Cash and cash equivalents 619.4 737.0 899.9 Receivables 9,375.8 15,772.0 17,262.1 Other assets 2.8 - - Total assets 9,998.0 16,509.0 18,162.0 Liabilities - securitised Payables 164.9 65.1 69.8 Derivative liability 18.9 13.7 46.2 Interest bearing liabilities 9,833.1 16,443.9 18,092.2 Total liabilities 10,016.9 16,522.7 18,208.2 Net assets (18.9) (13.7) (46.2) Net assets attributable to unitholders Cash flow hedge reserve (18.9) (13.7) (46.2) Total net assets attributable to unitholders (18.9) (13.7) (46.2)

Statement of cash flows for securitised special purpose vehicles

Half year ended

31 Dec 2009 31 Dec 2008 $M $M

Cash flows from operating activities

Receipts from customers (inclusive of GST) 455.0 880.3

Payments to suppliers and employees (inclusive of GST) (322.1) (772.4)

Net cash inflow from operating activities 132.9 107.9

Cash flows from investing activities

Mortgage loans - advanced and purchased (762.4) (4,907.4)

Mortgage loans repaid and sold 6,771.1 6,534.9

Net cash inflows from investing activities 6,008.7 1,627.5

Cash flows from financing activities

Proceeds from borrowings 1,139.3 4,180.2

Repayment of borrowings (7,397.5) (5,971.7)

Net cash outflows from financing activities (6,258.2) (1,791.5)

Net outflow in cash and cash equivalents held (116.6) (56.1)

Cash and cash equivalents at the beginning of the period 736.0 956.0

Cash and cash equivalents at the end of the period 619.4 899.9


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15. Contributed equity As at

31 Dec 2009 30 June 2009 31 Dec 2008

No. of shares

M $M

No. of shares

M $M

No. of shares

M $M

Shares on issue

Ordinary shares issued 543.8 1,377.0 596.0 1,563.0 608.2 1,576.5

LTIP shares treated as treasury shares (16.4) (53.6) (40.7) (117.5) (40.7) (117.5) CPP shares held in trust and treated as treasury shares (21.6) (77.7) (12.7) (44.1) (13.0) (45.0)

Contributed equity consolidated 505.8 1,245.7 542.6 1,401.4 554.5 1,414.0

Movement in shares on issue

Ordinary shares

Opening balance 596.0 1,563.0 632.4 1,622.1 632.4 1,622.1 Net shares cancelled under share based payment plan (6.7) (17.6) (5.3) (17.3) (5.3) (17.3) Shares purchased and cancelled under share buy-back (45.5) (168.4) (31.1) (41.8) (18.9) (28.3)

Closing balance 543.8 1,377.0 596.0 1,563.0 608.2 1,576.5

LTIP

Opening balance 40.7 117.5 46.2 135.2 46.2 135.2

Shares forfeited (6.7) (17.6) (5.3) (17.3) (5.3) (17.3)

Shares transferred to CPP trust (15.8) (41.9) - - - -

Vested shares released from LTIP plan (1.8) (4.4) (0.2) (0.4) (0.2) (0.4)

Closing balance1 16.4 53.6 40.7 117.5 40.7 117.5

CPP Trust

Opening balance 12.7 44.1 4.5 24.5 4.5 24.5 Shares purchased held in trust and treated as treasury shares 21.0 74.8 9.9 26.2 9.9 25.2

Shares released to employees (12.1) (41.2) (1.7) (6.6) (1.4) (4.7)

Closing balance 21.6 77.7 12.7 44.1 13.0 45.0

1The shares listed on the ASX exclude unvested shares under the executive share based payments scheme (LTIP). This can be represented as follows:

31 Dec 2009 30 June 2009 31 Dec 2008 No. of

shares M

No. of shares

M

No. of shares

M Ordinary shares

Listed on ASX 531.5 569.3 581.5 Unvested LTIP shares not listed on the ASX

12.3 26.7 26.7

Total ordinary shares issued 543.8 596.0 608.2


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16. Reserves As at

31 Dec

2009 30 June

2009 31 Dec

2008 $M $M $M

Equity option premium reserve Opening balance 125.2 125.1 125.1

Amortisation of issue costs - 0.1 -

Closing balance 125.2 125.2 125.1 Share based payments premium reserve Opening balance 57.8 34.2 34.2 Share based payments for the period 18.8 28.5 13.5 Releases from share based payment reserve (23.4) (4.9) (5.2) Closing balance 53.2 57.8 42.5 Available-for-sale investment revaluation reserve Opening balance 0.5 (2.4) (2.4) Revaluation gain /(loss) and tax taken to reserve 2.0 1.7 4.7 Impairment loss taken to income statement - 1.2 0.7 Closing balance 2.5 0.5 3.0 Cash flow hedge reserve Opening balance (1.3) - - Charged to equity 1.3 (1.3) 2.3 Closing balance - (1.3) 2.3 Cash flow hedge reserve from SPV Opening balance (13.7) 13.3 13.3 Charged to equity (5.2) (27.0) (59.5) Closing balance (18.9) (13.7) (46.2) Foreign currency translation reserve - CDI1 Opening balance (0.6) - - Loss on translation of foreign operation 0.1 (0.6) - Closing balance (0.5) (0.6) - Adjusted controlling interest reserve Opening balance - - - Adjustment to holding in controlled equity 9.4 - - Closing balance 9.4 - - Total reserves 170.9 167.9 126.7 1 At 31 December 2008, the Company acquired a controlling interest in the Challenger Diversified Property Group (CDI).


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16. Reserves (continued) Nature and purpose of reserves Equity option premium reserve This reserve represents the valuation assigned to options issued to Consolidated Press Holdings and to Colony Marlin-Holdings LLC.

Shares under option Grant date Expiry date Exercise price Number Consolidated Press Holdings Limited1 22 Dec 2003 22 Dec 2013 $3.25 60,000,000 Colony Marlin-Holdings LLC2 07 Nov 2007 07 Nov 2012 $7.00 57,142,857

1 Options issued to Consolidated Press Holdings Limited are non-transferable call options and may be exercised at any time within 10 years from their grant date (22 December 2003).

2 Options issued to Colony Marlin-Holdings, LLC are non-transferable call options and may be exercised at any time within five years from their grant date (7 November 2007).

Share based payments premium reserve Under AASB 2 Share Based Payments: an expense is recognised over the vesting period of share options, performance rights and capped performance rights granted to employees as part of the Challenger Performance Plan and the Long Term Incentive Plan. This expense is based on the valuation of the equity benefits granted at the grant date. When an instrument is granted, and an expense incurred, there is a corresponding increase in the share based payments reserve recognised as a separate component of equity. The total of this reserve is net of any gain or loss realised on the disposal of forfeited shares held within the schemes. Available-for-sale investment revaluation reserve This reserve includes the cumulative net change in the fair value of available-for-sale investments until the investment is derecognised or sold. Cash flow hedge reserve The cash flow hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred.

Cash flow hedge reserve from SPV Refer Note 14.

Foreign currency translation reserve - CDI The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of the foreign subsidiaries. Adjusted controlling interest reserve This reserve relates to changes arising from movements in the carrying amount of the Group’s ownership interests in CDI and the equity funds (Five Oceans and Wavestone). This is driven by changes in the ownership percentages as a result of new capital issued by CDI and the equity funds. The difference between the fair value of the consideration paid/received for the change in holding and the change the Group’s share of the net assets of the entity is recorded in this reserve.


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17. Reconciliation of operating cash flows Reconciliation of profit after income tax to net cash flows from operating activities:

Half year ended 31 Dec 2009 31 Dec 2008 $M $M

Profit/(loss) after tax 176.7 (107.9)

Adjustments for:

(Profit)/loss on sale of investments (165.5) 390.4

Net unrealised losses on investments (13.4) (403.0)

Profit from non-controlling interests 4.2 2.3

Share of associates' net profit/(loss) (0.1) (1.5)

Amortisation and depreciation 26.8 46.8

Policy liabilities fair value (gain)/loss 30.3 277.1

Reinsurance contract fair value loss 15.3 -

Policy liabilities acquisitions and maintenance expenses 116.9 115.5

Gain on annuity book transfer - (30.8)

Share based payments 16.1 11.9

Change in assets and liabilities, net of effects from purchase of controlled entity:

Decrease/(increase) in receivables 59.8 (261.2)

(Increase) in other assets (25.6) (4.4)

(Decrease)/increase in payables (10.8) 276.4

(Decrease) in policy liabilities (171.1) (261.8)

(Decrease) in provisions and employee benefits (7.0) (1.6)

Increase/(decrease) in deferred tax liabilities 4.2 (110.6)

Net cash inflow from operating income 56.8 (62.4)


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18. Discontinued operations On 30 October 2009, the Group sold its mortgage distribution business to NAB for a consideration of $383 million. In addition to the mortgage distribution legal entities, NAB acquired $4.5 billion of residential mortgages held in warehouses and the Group’s 41% stake in the listed mortgage origination company, Homeloans Limited.

Of this 41%, the transfer of a 23% holding to NAB is still subject to a Homeloans Limited shareholder vote in March 2010 and, as a result the Group continues to own 23% of Homeloans Limited at 31 December 2009. The $382.5 million consideration below excludes proceeds in respect of the 23% of Homeloans Limited.

Details of operations disposed The results and earnings per share impact of the disposal of the mortgage distribution business for the half year ended 31 December 2009 are presented below: Period ended

30 Oct 2009 $M

Half year ended 31 Dec 2008

$M

Revenue 119.4 134.0

Expenses (108.7) (117.0)

Share of net profits of associates 0.8 1.5

Gross profit 11.5 18.5

Tax expense (2.2) (2.9)

Profit after income tax on discontinued operations 9.3 15.6

Loss on disposal after income tax (0.5) -

Profit from discontinued operations after income tax 8.8 15.6 Earnings per share – cents per share

30 Oct 2009

cents

31 Dec 2008

cents

- Basic from discontinued operations 1.7 2.7

- Diluted from discontinued operations 1.6 2.7 Assets and Liabilities and cash flow information of disposed entities: The major classes of assets and liabilities of the disposed entities are: Period ended

30 Oct 2009 $M


$M Assets Cash 20.0 0.7 Receivables 645.9 485.5 Deferred tax assets 94.9 89.4 Goodwill 190.2 203.1 Other assets 2.5 0.3 Investment in associate 10.8 25.7

Total assets 964.3 804.7

Liabilities Payables 571.7 433.5 Provisions 7.7 1.1 Current tax liabilities 1.2 0.7

Total liabilities 580.6 435.3

Net Assets 383.7 369.4


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18. Discontinued operations (continued) The net cash flows of the mortgage distribution business for the period prior to disposal are as follows: Period ended

30 Oct 2009 $M


$M

Operating cash flows 11.4 17.6 Investing cash flows (38.0) (72.0) Net cash inflow (26.6) (54.4) $M Loss on sale Cash 382.5 Associated costs (10.9)

Total disposal consideration 371.6

Less: Net assets disposed of (383.7)

Loss on disposal before income tax (12.1) Income tax benefit 11.6

Loss on disposal after income tax (0.5)

Net cash inflow on disposal Consideration 371.1 Less: Cash and cash equivalents disposed of (20.0)

Net cash inflow on disposal 351.1

19. Significant transactions Harris Global Sovereign Bond Trust (Harris) is a new trust established during the period. The Group has a wholesale mandate governing the operation of this trust that locks-in 100% of the funding for a three year period. This lock-in period effectively places the balance of the risks related to the performance of Harris with the Group. As a result, the Group is deemed to control Harris and has therefore consolidated it.

The Balloon Inflation Linked Bond Trust (Balloon) is an existing trust that is being consolidated for the first time during the period. This is due to a change in the wholesale mandate that materially increased the locked-in funding in the trust and, consequently, the risk and rewards to the Group. The combined balance sheets of Harris and Balloon included in the consolidated balance sheet are set out below.

Carrying amount

$M

Fair value

$M

Cash and cash equivalents 72.5 72.5 Receivables 4.1 4.1 Debt securities 464.2 464.2 Derivative assets 1.0 1.0 External unit holders liabilities (541.2) (541.2) Derivative liabilities (7.4) (7.4) Accumulated profits 6.8 6.8 Net assets attributable to equity holders of the parent - -


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20. Subsequent events On 28 January 2010 Challenger Kenedix Japan Trust (CKT) unitholders voted in favour of an offer from CLC to buy the remaining units in CKT that it did not already own for $1.05 per unit. This resulted in an additional 95% holding in CKT, taking CLC’s holding to 100%. Trading in CKT shares has been suspended on the ASX and the entity delisted on 9 February 2010. CKT will be consolidated by the Group for the 30 June 2010 reporting period. As a result of the transaction occurring at a discount to the fair value of the net assets of the trust, the Group will recognise a provisional pre-tax profit on acquisition of $106 million, net of transaction related expenses.

Whilst the Group recognises that there may be future declines in Japanese property values over subsequent periods, all CKT properties were valued at 30 November 2009 by independent valuers and, given the current nature of these valuations, they are deemed to be the best approximation for determining fair value at the 28 January 2010 acquisition date. Other than the above, no matter or circumstance has arisen since 31 December 2009 that has significantly affected, or may significantly affect: • the Group’s operations in future financial



years.

21. Contingent liabilities, contingent assets and credit commitments Warranties The Group over the course of its corporate activity has given, as a seller of companies and as a vendor of real estate properties, warranties to purchasers on several agreements which are still outstanding at 31 December 2009. At the date of this report no material claims against these warranties have been received by the Group. The Victorian State Revenue Office has raised an assessment for stamp duty in respect of certain properties acquired by the Challenger Diversified Property Group as part of the initial public offering of this entity. Challenger is disputing the assessment. Parent entity guarantees and undertakings Excluded from the consolidated accounts are the following guarantees and undertakings extended to entities in the Group by Challenger Financial Services Group Limited (the parent): • Cross guarantee supporting the Medium

Term Note and the corporate banking facility. • Issue of letters of support in respect of certain

subsidiaries in the normal course of business. The letters recognise Challenger Financial Services Group Limited has a responsibility to ensure that those subsidiaries continue to meet their obligations.

• Australian Financial Services Licence (AFSL) deeds of undertaking as an eligible provider.

Third party guarantees Bank guarantees have been issued by a third party financial institution on behalf of the Group and its subsidiaries for items in the normal course of business such as rental contracts. The amounts involved are not considered to be material to the Group. Commitments Challenger Life Company Limited has capital commitments that it has made to external counterparties for future investment opportunities such as development or investment purchases. As at 31 December 2009 there are commitments totalling $134.8 million (June 2009: $152.6 million) in relation to these opportunities. Other information In the normal course of business, the Group enters into various types of business contracts that could give rise to contingent liabilities in relation to performance obligations under those contracts by certain members of the Group. The information usually required by AASB 137 Provisions, Contingent Liabilities and Contingent Assets, is not disclosed on the grounds that it may seriously prejudice the outcome of the claims. At the date of this report, significant uncertainty exists regarding any potential liability under these claims; however, the Directors are of the opinion that no material loss will be incurred.


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Investor information

a) ASX listing

Challenger Financial Services Group Limited shares are listed on the ASX under code CGF and company information, as well as trading information, can be accessed via the ASX website at www.asx.com.au. Share prices can also be accessed on Challenger’s website at www.challenger.com.au.

b) Key dates

Shareholders may like to note the following key dates: Ex-dividend date for the 2010 interim dividend 18 March 2010 Record date for the 2010 interim dividend 24 March 2010 Dividend payment date 16 April 2010

c) Shareholder queries

Please contact Computershare Investor Services for information about the Challenger Financial Services Group Limited share registry if you have any questions about your shareholding. Computershare Investor Services Pty Limited Level 3, 60 Carrington Street, Sydney NSW 2000. Investor queries 1800 780 782 Facsimile +61 2 8234 5050 To assist with all enquiries, please quote your current address and Security Reference Number (SRN) when speaking with Computershare’s associates.


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DIRECTORY

Level 15 255 Pitt Street SYDNEY NSW 2000

Principal Registered Office in Australia

Tel (02) 9994 7000 Fax (02) 9994 7777 Directors Peter Polson (Chairman) Dominic Stevens (Chief Executive Officer) Thomas Barrack Jr. Graham Cubbin Russell Hooper Leon Zwier Secretaries Christopher Robson Suzanne Koeppenkastrop Share Register Computershare Investor Services Pty Limited Level 3, 60 Carrington Street SYDNEY NSW 2000 Tel (02) 8234 5000 Fax (02) 8234 5050 Website: www.computershare.com.au

Ernst & Young 680 George Street

Auditor

SYDNEY NSW 2000 Internet Address www.challenger.com.au

Documents

Challenger Financial Services Group Limited Financial Services Group Limited Interim Financial Report 2 Interim financial report for the half year ended 31 December 2009 Contents Page