LICs have a fixed number of shares which are traded on the Australian Stock Exchange. The closed-end nature of the fund enables a focus on the medium to long-term portfolio performance without having to deal with funds moving in and out of the portfolio due to changes in investor sentiment.

We seek to create a portfolio of quality companies which are likely to sustainably grow their earnings and dividends over this medium to long-term timeframe. Our assessment of quality includes criteria such as the board and management, financial position, pricing power as well as some key financial metrics such as the level of gearing in the balance sheet, margins and cash flow. The structure of the industry and a company’s competitive position in its industry are also important indicators of quality. Linked to this assessment of quality is the ability of companies to grow earnings over time, which ultimately should produce good dividend and capital growth.

Recognising value is also an important aspect of AMCIL’s investment approach. Our assessment of value tries to reflect the opportunity a business has to prosper and thrive over the medium to long term.

Given the focused nature of the portfolio, AMCIL is more active in managing the holdings. Our preference is that positions will be held for the long term. However, in managing the risk in the portfolio, the Company is prepared to scale back or exit holdings completely if the investment case alters markedly, the position becomes too large in the portfolio or share prices become excessively high. In managing the portfolio in this way, we believe AMCIL can offer investors returns in excess of the S&P/ASX 200 over the long term.

Given the greater concentration of the portfolio, there may be periods when the performance of AMCIL can vary quite markedly from the Index. The objective is to deliver outperformance over the medium to long term.

The investment philosophy is built on taking a medium to longer term view of value, which means we aim to buy and hold individual stocks over the long term based on selection criteria which, in summary, include:

• Formulation and execution of business strategy of the company and its underlying business value;
  
  
• Key financial indicators, including prospective price earnings relative to projected growth, sustainability of earnings and dividend yield (including franking) and balance sheet position including gearing, interest cover and cash flow; and
  
  
• Corporate governance practices, including sound and well constructed boards.
  
  

AMCIL also has access to lines of credit, which allows the Company on a limited basis to gear its balance sheet when appropriate investment returns are available to enhance shareholder returns. In addition, the Company also uses options written against its trading portfolio to generate additional income.

The Company's corporate objective is to provide shareholders with attractive returns through strong capital growth in the portfolio over the medium to long term together with the generation of dividend income.

In determining the level of dividends (interim and final), including any special dividends, we will consider: the amount of income received, the amount of realised capital gains, the level of franking credits generated and investment market conditions. This approach may mean we will no longer be distributing all available franking credits at the end of each financial year. The Board does, however, continue to recognise the importance of attractive fully franked dividends to shareholders.

AMCIL receives dividends from the companies it invests in as well as other income. AMCIL then distributes its income to shareholders via fully franked dividends which are paid twice a year.

Shareholders can choose to reinvest these dividends via the DRP or DSSP to grow their investment over time.

When shareholders receive a franked dividend it means they are potentially entitled to a rebate on the tax already paid by the company AMCIL invests in. Franking credits attached to the dividend are sometimes known as imputation credits.