NZL New Zealand It

    This is the most important Chairman's Review that I have written for many
years, and shareholders are urged to read it carefully. The Review highlights
crucial information about the future of your Company and describes the work
being undertaken by the Board of Directors to ensure that a sensible way
forward is found in the light of the challenges presented by the tax reforms in
New Zealand.

We are pleased to report another strong year. Our diluted net asset value per
share increased to 383.1 pence per share, and we are recommending our fourth
consecutive dividend increase, up 15% to an all time record 7.5 pence per
share. The good performance has continued since our 31 October 2006 year end,
with our diluted net asset value per share rising another 6% to 407.4 pence at
7 March 2007. Expressed in New Zealand dollars, our results have been even
better, as our diluted net asset value per share reached NZ$10.91 at 31 October
2006 and continued on up to NZ$11.48 at 7 March 2007, despite the recent
softness in world equity market.

Investment Performance

The New Zealand dollar value of our net assets increased by 21%, significantly
better than the 6% increase of the New Zealand Exchange All Index. Even more
impressive is the longer term performance of our Investment Management team of
iimia in the United Kingdom, advised by Brook Asset Management in New Zealand.
In their two and one-half years from April 2004 through October 2006, measured
in New Zealand dollars, the net asset value of our New Zealand investments rose
52%, against the New Zealand Exchange All Index increase of 20%, and the net
asset value of our Australian investments increased 88%, compared with a 57%
increase in the Australian All Ordinaries Index.

Taking an even longer view, since the formation of the Company our diluted net
asset value has increased by 303%, against only 62% for the New Zealand Stock
Exchange All Index and its predecessor the NZSE40 Capital Index. From the 95.1
pence available from our initial offering, our net asset value per share grew
through the end of last year to 383.1 pence, and we have paid and proposed
gross dividends of 84.4 pence, for a total investment return of 392%. Investing
for long-term gains, rather than trying to catch temporary or cyclical
movements, has created this exemplary record.

Again in our 2006 financial year, the Australian share market outperformed that
of New Zealand, and we have benefited significantly from our ability to invest
a minority of our funds in Australia. We ended at 31 October 2006 with 33% of
our assets in Australian shares and cash, slightly less than at the beginning
of the year, but our average Australian investments were well above those of
the previous year, and this proved very beneficial. Our Australian cash
balances appreciated in New Zealand dollars, and our Australian share portfolio
rose 28% in New Zealand dollar terms. We remain primarily devoted to New
Zealand securities, but as the integration of the Australasian economies
continues, we expect our balanced approach will continue to produce better
results than those available from investing in New Zealand alone.

The Company's performance in New Zealand Dollar terms since 2000 continuation
vote for the period 1 April 2000 to 31 October 2006 by comparison to the NZX
All Index and Australian All Ords is set out below. (1 April 2000 has been
rebased to 100.00)

NZIT Net Asset Value (NZ$) NZX All Index  Australian All Ords     
                                          (NZ$)                   
                                                                  
221                        145            162                     

Treasury Share Programme

Perhaps as a reflection of our excellent performance, our shares are trading at
less of a discount to net asset value than in the recent past. We were the
first investment trust to take advantage of the regulatory change allowing us
to purchase shares in the market, and hold them in Treasury. In our 2005
financial year, we cancelled 105,780 shares held in Treasury, which were shares
we had bought at an average cost of 224 pence. With our diluted net asset value
per share now at nearly twice that, at 407 pence, it is obvious that this has
been of great benefit to our shareholders. Since that cancellation, we have
bought for Treasury another 425,870 shares at an average cost of 342 pence, so
the program continues to serve shareholders well. Our purchases have clearly
benefited selling shareholders by improving the liquidity of the market, while
enhancing the value of the remainder of our shares.

We urge shareholders to support the continuation of this program by voting in
support of the resolutions to be considered at the forthcoming Annual General
Meeting.

Taxation Changes Affecting New Zealand Residents

The Government of New Zealand introduced and passed, in December 2006, sweeping
changes to the way that New Zealand residents are taxed on holdings of foreign
shares. Since The New Zealand Investment Trust is a United Kingdom company, the
holdings of a majority of our shareholders will eventually come under the new
tax regime. The date for the general introduction of the new taxation rules is
1 April 2007, but so long as we operate within certain restrictions, New
Zealand residents will not be taxed under these new rules on their holdings of
our shares until the year beginning 1 April 2009. We emphasise that the changes
do not impact in any way the taxation incurred by the residents of any country
other than New Zealand.

The major change affecting some of our New Zealand resident shareholders
effective 1 April 2009 is the imposition of a "deemed dividend" tax on imputed
income equal to 5% of the value of their shares as of that date. This will
apply only to shareholders who hold more than NZ$ 50,000 of overseas shares,
including their holdings of The New Zealand Investment Trust, but this will
obviously include a great many, if not most, or our New Zealand resident
shareholders. At present, the only tax imposed upon New Zealanders holding our
shares is on the dividends they receive. As our dividend approximates to a
yield of only about 2%, the taxable income New Zealanders will report from
holding our shares will more than double. New Zealand residents who are not
considered "traders" in securities do not now suffer capital gains taxes when
they sell our shares, nor will they in the future.

Clearly, New Zealand residents holding our shares will see no disadvantage to
holding our shares for two more years. However, the government of New Zealand
also introduced changes in the ways that New Zealand based investment companies
will be taxed. This will result in new opportunities for New Zealand residents
to invest in locally based investment companies.

Taxation Changes Affecting New Zealand Portfolio Investment Entities ("PIEs").

At present, a New Zealand based investment company which actively manages its
portfolio, as The New Zealand Investment Trust has done from the UK so
successfully in the past, must provide for tax on its capital gains at a rate
of 33%. This has been a substantial impediment to the expansion of locally
managed investment companies, because as noted above, New Zealand residents who
invest directly in company shares are generally not taxed on any capital gains
they achieve.

This will change on 1 October 2007, after which New Zealand investment
companies which qualify as PIEs will not suffer any capital gains tax. Even
more advantageously, closed end investment companies which, like ours, are
listed on stock exchanges, will pay on behalf of their shareholders a 33%
"final" tax on their net investment income (dividends and interest, less their
operating costs). The importance of a "final" tax is that New Zealand resident
shareholders subject to tax at a rate of 39% will suffer only the 33%
imputation tax, not having to report their income from the PIE. An additional
advantage to the new PIEs for New Zealand resident shareholders is that
dividend imputation credits earned by the PIE can be used to reduce the income
on which the PIE pays tax, so in many cases the listed PIE will be able to pay
dividends effectively free of any tax.

What that means for our Company is that, after 1 October 2007, it will be less
tax-efficient than New Zealand PIEs for New Zealand residents. While our New
Zealand resident shareholders will be spared the new 5% "deemed dividend" tax
for another year and a half, they will see us as less attractive than their
local PIEs in several ways:

  * They will suffer the United Kingdom income tax on our Company's net income
    at the rate of 30%.
   
  * The imputation credits will be lost.
   
  * They will suffer a 15% withholding tax paid by our company on dividends,
    and a 2% or 10% withholding tax paid on interest, only partly compensated
    for by those companies which can "gross up" the dividends paid to us.
   
We have therefore been exploring the means by which we might be able to
continue to give our New Zealand resident shareholders the same great
investment performance we have achieved over the years, with the tax advantages
offered by the new legislation. In light of this we are looking at a number of
possibilities including reorganising our Company into a New Zealand PIE. At the
same time, we must try to provide that any actions we recommend do not
materially disadvantage the other half of our shareholders, and hopefully that
they might share some important new advantages. This is a complex exercise,
involving primarily the tax systems of New Zealand and the United Kingdom and
the tax treaties between them, so we cannot yet make concrete recommendations.
The potential benefits of reorganising as a PIE are clear, however:

  * Reduced operating expenses.
   
  * The possibility of increased dividends as they may be paid from both
    revenue and capital.
   
  * Reduced income taxes payable by New Zealand shareholders on dividends.
   
Board Recommendation Against Continuation as an Investment Trust

We are excited about the possibility of creating even greater value for our
shareholders in the future, and look upon these sorts of changes as
opportunities. While we have not yet been able to finalise our recommendation
to you as to the optimal way to take advantage of the New Zealand taxation
changes, we have concluded that it is not in the best interest of our
shareholders to continue as a United Kingdom investment trust. It is therefore
with some regret that we recommend a vote against continuation as an investment
trust.

We emphasise to you that we have NOT concluded that your Company is not an
attractive and viable investment for the future, only that it is no longer
optimal that it be a UK investment trust. So, just what does it mean if you
agree with our recommendation, and vote against continuation as an investment
trust?

Under the Articles of Association, if you as shareholders vote against
continuation of the Company as an investment trust, we as a Board are required
to submit for your approval as a Special Resolution a plan to reorganise the
Company in another form, which for example could be as an open ended entity or
as a company qualifying as a PIE under the New Zealand rules effective on 1
October 2007. We must submit our proposal to you no later than the next Annual
General Meeting following that in May 2007, which means before May 2008. The
fact that this will be proposed as a Special Resolution means that it will
carry only if supported by at least 75% of those shareholders voting. In the
meantime the Company will continue in its present form, managed in the same
manner as has been so successful in the past, and we will endeavour to continue
to qualify for the exemption from the new tax on foreign holdings by New
Zealand residents.

We do not know when we will be able to present the reorganization plan, but we
will do so as soon as practicable.

So, what happens if you do not approve whatever plan we put forth prior to May
2008? Again according to the Articles of Association, your Board must then
submit to you an Ordinary Resolution to wind up the Company and the Company's
assets will be sold and the net proceeds will be distributed to you in cash.

We do believe that the changes in the way the New Zealand government will tax
investment companies makes it possible to produce better investment outcomes
for all of our shareholders, and we will be looking closely at ways to achieve
this. Any reconstruction will provide the opportunity for dissenting
shareholders to receive cash for their shares at a modest discount from net
asset value, whether the reconstruction goes forward or the Company is
liquidated. In other words, shareholders who want out should NOT have to vote
against the reconstruction proposal to achieve that exit.

Outlook

While we and you deal with the reconstruction issues described above, we and
our Manager and Adviser will continue to manage the investment of the Company's
assets in the same manner that has historically produced such good results, so
the immediate outlook for your Company is unaffected.

The Official Cash Rate set by the Reserve Bank of New Zealand has just been
raised to 7.50%, remaining the highest in the developed world. The New Zealand
dollar has declined below US 70 cents again, and the "carry trade" by which yen
is borrowed at very low interest rates to finance the purchase of New Zealand
bonds, may become less important. However, the strength of the New Zealand
dollar against world currencies, and especially against the Australian dollar,
continues to put great pressure on New Zealand exporters and the resulting
current account deficit remains a problem.

Despite these pressures, the strong world commodity markets and the resulting
favourable terms of trade enjoyed by New Zealand are keeping the domestic
economy growing. Australia, too, is suffering some of the same problems, but
continues to grow. In that regard, it is useful to repeat from my Chairman's
Review of last year the positive factors that continue to produce good results
for our Company, and the conclusion that followed:

  * "The high New Zealand and Australian dividend levels create real value, and
    should support share prices.
   
  * Company balance sheets are robust.
   
  * The New Zealand government superannuation (pension) fund is providing
    significant and steady support, as is Australia's.
   
  * The governments of New Zealand and Australia are increasing infrastructure
    spending, but are maintaining budget surpluses.
   
  * Improvements in standards of regulation, corporate governance, and
    management.
   
  * New Zealand and Australia are exposed to the growing economies of East and
    South Asia.
   
The strength of the share markets in New Zealand and Australia continue to
challenge our Adviser and Manager, as they seek out prospective shares in which
to invest. Our past performance has been a combination of astute investment
decisions, and rising share markets and currencies, and we cannot reasonably
expect the share markets and currencies to be so supportive in the coming year.
We do believe, however, that success in picking some of the best stocks in New
Zealand and Australia will continue to build value, and we note that this
year's results were achieved despite modest declines in the New Zealand and
Australian dollars."

Donald M. Campbell

Chairman

20 March 2007



END

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