AS AT 31 MARCH 1997

Performance
The portfolio's performance is starting to benefit from the numerous changes we have been making since late last year. In addition, several of our established holdings are now being recognised by the markets and are starting to appreciate.

For the last three months the company has appreciated by 7.7%, this compares favourably with the MSCI World Accumulation Index (+1.6%) notwithstanding a geographic portfolio mix that is completely different from the latter.

PCL Cumulative Performance Of NAV (Pre-Tax) And Share Price Versus

MSCI World Accumulation Index

Changes To The Portfolio
The portfolio is characterised by the continued reduction of holdings in the USA and the build-up of companies in Europe. Among the bigger holdings acquired were Schindler, Siemens, AGIV, Accor and Generali. Some of our European holdings that have performed very strongly, like Daimler Benz and Alcatel Alsthom were trimmed and sold completely. Other purchases include an interest in the property sector in Canada and News Corporation in Australia. The holdings in Japan were largely unchanged though we altered the Indonesian holdings by selling Astra and Lippo Securities and purchasing Indosat. Samsung Electronics was added in Korea. In Brazil we sold out of Petrobras and reduced Electrobras once their prices moved ahead of underlying realities.

Top Ten Holdings (as at 31 March 1997)

Stock	Country	Industry	% Holding
Firebird Fund	Russia	Investment Fund	8.6%
Fuji Photo Film	Japan	Photographic Equipment	4.0%
Canon	Japan	Office Equipment	3.7%
Schindler	Switzerland	Construction	3.5%
Lagardere	France	Media/Defence	2.9%
Yamanouchi Pharm.	Japan	Pharmaceutical	2.3%
Nintendo	Japan	Home Entertainment	2.2%
Samsung Electronics	Korea	Electronics	2.1%
Daiichi Pharm.	Japan	Pharmaceutical	2.1%
Sekisui House	Japan	Home Builder	2.1%
TOTAL			33.5%

To some, an inspection of our portfolio will raise concerns about our apparent inability to understand the obvious. Here we have a roaring bull market - the USA - and yet the company deploys virtually no assets there but instead has shorts. The weight of our funds are largely in Europe and North East Asia and "everyone knows" that these economies have huge problems so why on earth are we putting client's hard earned wealth in apparent basket cases? Though we run the risk of stating the obvious, we are trying to buy low and sell high. We can identify small pockets of interest in the US but in general most of the interesting companies are priced at high levels according to all the measures we regard as having long term reliability. We find it hard to imagine a more luxuriant environment for equities and believe this is fully factored into current prices. We regard it as foolish to chase small potential rewards in view of the considerable risks.

Consider the roll of economic events over the last ten years. Beginning with an overvalued US dollar in 1985-86, US industry underwent a thorough rethink to ultimately enjoy a significant boost to real earnings principally in the last six years. (From 1991 to 1996 reported earnings rose some 130%: with the base of 1991 incidentally sharing the same level of earnings as 1985-86. In the current environment few could imagine that a similar pattern of earnings decline could occur!).

We argue that Japan and Continental Europe are going through a similar major restructuring phase. Contrary to the impressions given by the financial press, this process has in fact been in train since the late 1980s. In the case of Japan, direct foreign industrial investment peaked in 1989-90 at an annual rate of around US$60 billion. This movement of capital and know-how from Japan, and importantly also from other industrial countries, added massive impetus to the development of Asia and created colossal capacity in the manufacture of traded goods. We believe that this laid one of the foundation stones of the low inflation that now prevails by mobilising resources that were previously untapped. Out of this massive transference of resources grew the impression that Asia had a future of certain and high growth. This encouraged further investment in the production of basic commodities - steel, cement, bulk chemicals. The net result of these developments has been an error of expectations and an improvement in the terms of trade of several significant Western economies. The resulting flood of goods has made life pretty miserable for those competing against these imports now that tariffs and other protective barriers have been much diminished or removed.

Commentators now talk glibly about the many imperfections in the Japanese economic model (which are common to Korea as well) and have long forgotten earlier emotive calls of doom regarding the Japanese onslaught. Our view is that this temporary window of over-supply should be considered separately from the underlying adjustments that are being made to these economies. To believe that the officials in Tokyo and Seoul have learned nothing from the "bubble years" stretches credulity.

We can make similar observations in Europe where the broad range of companies we follow and/or own have been restructuring for some while, and most have reduced their workforces by 15-20% since 1990. This brings us to the essence of our apparent lopsided deployment of funds.

Disposition Of Assets

Region 31	March 1997
Western Europe	34.9%
Japan	24.4%
Other Asia	9.4%
Eastern Europe and Russia	8.6%
South America	6.9%
North America	4.2%
Australia	1.4%
Cash	10.2%

The fund has sold S&P 500 index futures equivalent to 17% of its assets; thus the fund is net short the US market by 15%.

We are arguing for further strong earnings growth from our companies in these areas as they complete their restructuring and adopt some of the practices so effectively employed by their US counterparts. In addition, they should benefit from the tailwind of stronger economic growth. With profitability quotients still well below their peaks (expressed either in terms of capital employed or sales), earnings growth is still gaining momentum.

This prospect of superior earnings growth should provide some protection to European companies in the face of a tightening of liquidity in some of those countries that have led the cycle, notably the US, UK and perhaps the Scandinavians. Short term interest rates have already begun to rise in the US and with the price of capital being increasingly homogenised internationally, there is the risk of the higher cost of capital in the US impinging on the valuations of markets in general.

Nevertheless, we believe that North East Asia may dance to a different tune. Korea and Japan have already had a torrid twelve months with valuations having been driven down. It has been interesting to observe the general derating of the Japanese market in the face of falling bond yields in that country and the concomitant reappraisal of growth stocks along Anglo Saxon lines (as highlighted in previous correspondence). This has been beneficial to the Japanese shares we own and they have appreciated in a falling market.

Some of the material above may seem unduly macro economic in prospective. However, the same conclusions are reached when one studies the individual companies in their respective operating environments. The two company reviews that follow should hopefully make this apparent.

Stock Stories:

Samsung Electronics (Korea)
Many of us would know Samsung as a maker of inexpensive colour TVs and VCRs but may fail to realise that almost 20% of the memory chips (Drams) that power our everyday electronic products such as PCs, microwaves and Nintendo 64 game players are made by Samsung. This is some achievement for a company that only started in this business in the mid 1980s. Consider the immense technical knowledge base required in placing 65 million transistors on a piece of silicon the size of a fingernail!

Aside from their leadership in memory chips, Samsung is responsible for 1 in 6 of all microwaves and PC monitors and 1 in 10 of all VCRs produced in the world today. In terms of emerging technologies they are at the forefront of new memory devices such as flash memory, LCD based TVs, high powered computer storage devices and CDMA based mobile phone equipment which is becoming a major new standard in the industry. Evidence of the company's technical standing is found in the quality of its collaborative partners and the falling level of net royalty payments over time.

The case for Samsung primarily rests with the realisation that this is a truly global company that has demonstrated technical excellence in a broad range of products and is competitive with the big players in Japan and Europe. This observation is supported by the track record which shows superior sales and profit growth, and profitability measures that are at least on par with its peers. Whilst the businesses are highly competitive, Samsung appears to be a low cost producer.

Yet the valuation attributed to Samsung is well below that of its international peers. On the basis of market price to cashflow, Samsung trades at about 2.6x versus a grouping of peers of 5-6x. While some may argue that this discount is appropriate because of the Korean market's high interest rates, the fact remains that Samsung exports 65% of its product and has the ability to access global capital markets at low rates of interest. Over time the marginal buyers of Samsung will be foreigners who are likely to set a much lower discount rate.

Schindler (Switzerland)
The basic workings of elevators and escalators are relatively simple and the key technologies are over a century old. As a result there are countless companies serving this market around the world, but when it comes to the global leaders who snare the major contracts, there are only really two: Schindler and Otis. Schindler is a family owned Swiss company while Otis is part of the American conglomerate, United Technologies.

Schindler's sales are driven by several factors. Construction of new buildings - office towers, apartment blocks, shopping malls - means demand for new installations, but the bulk of sales and profits come from the more lucrative market for servicing and for refurbishment of older lifts. The estimated installed base in North America is some 700,000 elevators, the Far East about 400,000, and over two million (around two thirds of the installed base worldwide) are in Europe. Demand for new installations can be highly variable, as Schindler painfully discovered as the market for high end gearless lifts in the US shrunk from around 1000 units per year to just 170 units in 1990, just as the company was expanding its presence in that market through an acquisition. Around the world new installations have been hurt by the fallout from speculative property development in the late Eighties, but Schindler's sales have held remarkably firm as a result of demand for servicing and modernisation.

The euphoria of the consumption and construction boom of the Eighties led to the inevitable hangover, with demand declining and price competition across all areas intensifying. Schindler took up the challenge of lower demand, closing plants, cutting staff and improving its work methods. In the US, Schindler became the leader in escalators within four years by cutting cycle times by three quarters and raising output by 50% concurrent with staff cuts. Throughput times for hydraulic elevators were halved, doubling that plant's capacity. The same programmes are now being implemented in Europe.

The company has not neglected new sources of growth, and has a significant presence in China, having established itself there in 1980. Also, small competitors in the service area have been squeezed as companies like Schindler incorporate advanced proprietary software into their systems (lifts return to ground quickly to collect arriving workers in the mornings, escalators slow down when not in use and speed up when they sense an approaching passenger). In all, the company is in a stronger competitive position than ever before.

With characteristic Swiss conservatism, Schindler reports an unflattering set of profit figures. Restructuring imposed costs which suppressed profitability. Investors were sceptical that Schindler's documented achievements would ever translate into acceptable profits, while competitors such as Otis and Dover were flaunting significantly higher margins. However, the company set itself explicit 1997 profit targets and we were gratified when the company reported that it was well on the way to achieving these in 1996. No longer is the company burdened by an extremely overvalued currency, and management cannot hide the underlying strength of the business through its conservative valuation methods indefinitely. We believe that 1997 is just a stepping stone to strong profitability as the company enjoys the benefits of lean, efficient manufacturing and organisation.

As the floor numbers illuminate and you are wondering where to look in a lift, you may note the name of the manufacturer or service company. It could well be Schindler.

Buy-Back
Following shareholder approval gained at last October's AGM, the Directors of Platinum Capital have instigated a buy-back of up to 5% of PCL issued shares between 3 March - 30 May 1997, the purpose of which is to add shareholder value. The amount of shares purchased will be notified to the Australian Stock Exchange on a daily basis.

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