Sydney

Level 41, Aurora Place 88 Phillip Street Sydney NSW 2000 Australia GPO Box 3698 Sydney NSW 2001 www.challenger.com.au

Telephone 02 9994 7000 Facsimile 02 9994 7777

26 February 2007

Mr A. Smythe Australian Stock Exchange Limited PO Box H224 Australia Square SYDNEY NSW 1215

Dear Mr Smythe

Challenger Financial Services Group Limited (CGF) Amendment to Release 'Half Yearly Report'

Please find attached the Half Yearly Report, including page 1 of the Challenger Financial Result Summary, omitted from the previously lodged version.

Yours sincerely,

Vahon

Chris Robson General Counsel and Group Company Secretary

Methourne Level 10, 101 Collins Street PO Box 297, Flinders Lane, Methourne VIC 3000 Telephone 03 8616 1800 Facsimile 03 8616 1899 Level 9, CLIA Building 175 Eagle Street GPO Box 3234, Brisbane QLD 4001 Telephone 07 3218 8000 Facsimile 07 3220 3132 Brisbane Level 3, 55 St Georges Tensce PO Box 25065, St Georges Tensce, Perth WA 6831 Telephone 08 9223 7800 Facsimile 08 9221 2499 Perth Adelaide Level 1, 212 Pine Street Adelaide SA 5000 Telephone 08 8211 7777 Facsimile 08 8212 1661

MARKET RELEASE

26 February 2007

CHALLENGER ANNOUNCES RECORD INTERIM PROFIT OF \$130 MILLION

Highlights

• Record net profit after tax (NPAT) of \$130m up 117 per cent $\blacksquare$
• Interim dividend of 5 cents per share fully franked up 100 per cent á.
• Earnings per share (EPS) of 23.7 cents up 112 per cent $\blacksquare$
• $\blacksquare$ Portfolio volumes of \$46.4 billion - up 17 per cent
• ä Strong growth in net income to \$324 million - up 47 per cent

26 February 2007, Sydney - Challenger Financial Services Group Limited (ASX: CGF) today announced a record \$130 million net profit after tax for the six months to December 2006, an increase of 117 per cent on the previous corresponding period.

The Group has declared an interim dividend of five cents per share fully franked for the period, up 100 per cent on the prior corresponding period.

Challenger CEO Mike Tilley said: "This result further demonstrates that our strategy of being an innovative and contemporary financial services organisation is delivering results for our shareholders. The result was driven by strong revenue growth across each of our businesses.

"By targeting fee-generating income streams and remaining focused on our core markets, we have delivered consistent growth in earnings and uplift in earnings per share," he said.

EPS increased to 23.7 cents for the half, up 112 per cent on the prior corresponding period. Mr Tilley said he was confident that Challenger could continue to achieve double digit EPS growth over the long term.

"Financial discipline is a key characteristic of Challenger's approach. Three of our four divisions have met or bettered their return on net assets target of 18 per cent this half. We have completed a strategic review of financial planning and implementation of the strategy is due to commence from July 1 2007."

"We employ strong financial discipline at all levels of our business and we do not overpay for assets or focus on short-term market pressures that might damage our long-term profitability," he said.

Outlook

Challenger will continue to build its fee-based activities and invest in its people, processes and systems. Financial discipline remains a core tenet of the company's operational approach.

"We are delivering a greater than 30 per cent return on net tangible assets from our businesses and achieving double digit growth in earnings per share," concluded Mr Tilley.

ENDS

Challenger Financial Services Group Limited

Interim Results to 31 December 2006

Financial Highlights - Statutory

* Adjusted to remove CIF minorities in 1H06 and 2H06

Assets and loans under management, administration or advice: \$46.4bn up 18% on prior corresponding period (pcp) reflecting;

• . Asset Management up 40% on pcp predominantly reflecting the growth in specialist funds
• · Funds Management up 30% on pcp reflecting underlying market strength, strong alpha generation, broadening distribution reach and growth from boutique partnership strategy

Net income: \$324m up 47% on pcp, underpinned by solid growth in AUM and FUM.

• . Net fee income up \$52m or 38% driven by Asset Management (\$23m) and Funds Management (\$16m)
• · Net investment income up \$55m

Expenses: \$145m up 24% on pcp reflecting ongoing investment in people, products and technology.

• . Cost to income ratio improved to 45%, from 53% in 1H06
• . Costs were up \$28m of which 40% was growth in variable incentive payments

Divisional contribution to EBIT

* Financial planning performance impacted by restructuring charges and non recurring income in the pcp

Return on Net Assets (RONA) (annualised)

Capital Highlights

Dividend: declared 5 cents per share fully franked

• * Record Date: 28 March 2007
• · Payment Date: 20 April 2007

Contemporary long term incentive and retention scheme introduced

• . Involves the use of performance share rights and hurdled executive options
• · TSR hurdle -- upper quartile performance; or
• · EPS hurdle 10% or better
• . Suspended future awards under existing LTIP whilst existing awards to be grandfathered
• · Flexibility to acquire shares on market to avoid dillution under new schemes

Outlook

Our contemporary platforms continue to build fee based income streams; as our assets and funds under management. continue to grow

We are committed to the success of our customers and are working to build stronger relationships and provide better service

Continued investments in people, processes and systems

We are committed to maintain strong discipline in all our activities

We remain committed to delivering greater than 18% RONA from our businesses and long term double digit EPS growth

Challenger Strategy

To be an innovative and contemporary financial services organisation

Based around;

• · Growing fee based income streams
• Operating where we have comparative advantage $\Phi$
• $\pmb{\phi}$ Targeting growth markets

INVESTMENT OBJECTIVES: To deliver:

• . Double digit EPS growth
• RONA greater than 18% $\Phi$

OUR MODEL: Innovative and contemporary business delivering value

CORE COMPENTENCIES AND CAPABILITIES;

Within markets with natural growth of greater than10% pa, Challenger looks to leverage its;

People: Experienced teams with track record of delivering quality products and services

Products: Focused on delivering superior customer outcomes and quality products and services.

· Growing fee based income streams

Operations: Centralised contemporary scalable technology delivering low cost, efficient solutions

. Ongoing investment in common systems and platforms leading to significant scale economies

Distribution: Deliver via and leverage third party intermediaries

· Challenger expects this trend towards non tied distribution through intermediaries to continue

CAPITAL MANAGEMENT DISCIPLINE

Disciplined approach to the deployment of capital which underpins long term value creation.

Priority: invest in growth products, businesses and services that generate returns at or above 18% RONA

Dividend: Policy of 30% statutory net profit after tax

Gearing: Maintain conservative levels to ensure financial flexibility to fund growth options

Regulatory Capital: Maximise value by lowering weighted average cost of capital

• US\$150m sub debt issue is regulatory capital

All business contributing to fundamental growth in top line

Assets Under Management

Total Group Assets under Management, Administration or Advice \$46.4bn up +18% from \$39.5bn at 1H06.

Assets Under Management

*Financial Planning assests lactades revenue generating funds under advice in 1HO7/2H06
- pre 2H06 data is not avaliable, Estimates of \$4.96n have been used for comparative purposes in 1H06

Earnings before interest & tax (EBIT)

Basic earnings per share (EPS)

Funds Management

Financial Highlights

Strong growth in funds under management (FUM) underpins result

FUM: \$15.5bn up 30% on pcp

• . Strong FUM growth driven by underlying market strength and strong alpha performance
• Net income: \$55m up 31% on pcp
• . Underpinned by strong FUM growth and alpha generation
• . Full impact of stronger flows in December 06 quarter are not yet fully impacting net income

Expenses: \$38m up 9% on pcp

• . Trend in cost to income ratio remains positive, falling to 69% from 84% in 1H06
• · Slight increase in cost to income ratio from 65% at 2H06 reflecting
• . Investment in branding and technology
• . Revenue driven growth in performance based incentive schemes

EBIT: \$17m up 143% on pcp

· Beginnings of strong earnings momentum from Funds Management

RONA: 25% up 145% on pcp

• FY06 RONA of 18.6% was the first time Funds Management had achieved a return greater than 18% RONA
• . Step up in RONA to 25% highlights attractiveness of this low capital intensive business

Performance Highlights

Challenger has a diverse funds management strategy

spanning retail and institutional offerings from internal investment managers, boutique partnerships and investment alliances. This strategy means that Challenger is not capacity constrained

Being a contemporary funds management business

• · Challenger benefits from no major 'retail' back book issues and hence growth from platforms does not result in margin erosion concerns
• · Business is supported across two core scalable systems

Alpha performance building momentum

• * 43% CAGR in FUM since 2004
• · Experienced and talented investment teams underlie strong investment performance
• * Strong alpha generation continues to be delivered
• across the broad range of asset classes and strategies
• . from retail and institutional strategies manufactured by internal investment managers, boutique partnerships and investment alliances
• · delivering strong growth against industry FUM growth rates and a broadening distribution footprint assisted by strong support from asset consultants

FUM by asset class - Jun 2003

FUM by asset class - Dec 2006

Boutique Partnerships producing positive results

• . Kinetic Investment Partners is operating profitably after exceeding \$500m in FUM
• . Greencape Capital launched in the December 06 quarter has already secured its first mandate and is building a track record of performance.
• * Kapstream Capital will be launched in 2H07

Mortgage Management

Financial Highlights

Established and resilient portfolio

FUM: Residential mortgages \$18.8bn up 9% on pcp Commercial mortgages \$2.8bn up 12% on pcp

. Market share in variable rate originations has been maintained

Net income: \$72m up 14% on pcp

• . Residential net income of \$62m was up \$10m with an EBIT margin of 39bp up 1bp since June 2006 driven by efficiency gains
• . Commercial income was relatively flat with a small decline in EBIT margin of 6bps

Expenses: \$29m up 7% on pcp

. Expenses were flat from the previous half highlighting the ongoing efficiency improvements and benefits of scale as the cost to income ratio improved to 41%, from 43% in 1H06

EBIT: \$43m up 19% on pcp

· Benefited from improved margins in securitisation program due to strong global capital markets and ongoing broadening of the global investor base

RONA: 20.8% up 4% on pcp

• . From 2H06 RONA was slightly down from 23.3% driven off
• a higher capital base

Performance Highlights

Cycle impacting macro environment

Three interest rates increases and speculation of further rate rises have negatively impacted system growth in 1H07 across all states and territory's except Western Australia (WA) where system growth has remained robust.

Current macro conditions have impacted Challenger's book reflecting;

• Refinancing into fixed rate products
• · Houshold's making higher levels of unscheduled repayments to avoid higher interest charges and reduce debt levels
• . System growth has been strongest in WA where Challenger is relatively underweight

Focus remains profitable and disciplined growth

Challenger has responded by;

• . Competitive fixed rate product launched in December 06 quarter.
• . Maintain discipline with regard to margin and credit quality
• . Operational efficiency will continue to come from investing in scalable systems that can maintain Challenger's comparative advantage in service standards and turnaround times

Largest non bank issuer of Australian residential backed mortgage securities (RMBS). Challenger has seen an ongoing broadening of its securitisation program with issues in multiple currencies across a widening global investor base.

Challenger has agreed to take an equity stake in Homeloans

• · Interest will be approximately 40%; subject to Homeloans shareholder approval
• Challenger sees an opportunity to leverage the non bank distribution sector
• Offers some potential to fill a strategic gap for Challenger in the WA market

Asset Management

Financial Highlights

Focused on quality assets

FUM: \$5.3bn up 40% on pcp

. Specialist funds have increased to \$2bn from \$0.7bn at 1H06 predominantly reflecting the launch of Challenger Diversified Property Group (CDI) and the second instalment of the Challenger Infrastructure Fund (CIF)

Net income: \$170m up 85% on pcp

. Net fee income up \$23m due to the recognition of the CIF consolidation impact in FY06

Expenses: \$39m up 56% on pcp

• Cost to income ratio of 23% is low versus industry peers
• · Growth in expenses continues to reflect ongoing build out of teams and variable compensation.

EBIT: \$131m up 96% on pcp

• EBIT margin continues its positive trend to 77% from 73% in 1H06

RONA: 30% up 52% on pcp

Performance Highlights

Active investment strategy focused on total return

• . Disciplined originators of assets that produce long term, predictable income streams in 3 core asset classes of Property, Infrastructure and Fixed Income
• * Asset Management is a total return investor which places equal importance on capital generation and long term predictable income streams

Creating key platforms for growth

Primary focus of Asset Management is building fee based revenue schemes and as a consequence continues to invest in people.

Over 1H07;

• * August 2006: CIF final instalment settled. Total return over six months to 31 December 2006, 34.3% versus ASX 200 Industrial Accumulation Index total return 18.8%
• . October 2006: CDI successfully listed with gross assets of \$650m
• * December 2006: Strategic joint venture announced with Kenedix Inc., a Japanese based real estate management and investment advisory group
• . December 2006: \$39m in fee income for 1H07 vs \$1m in fee income at 1H05

Spread business identifying opportunities to source alternative capital to secure continued growth.

US\$150m subordinated debt was raised in the US private placement market during the half, supported by Challenger's Standard & Poors (S&P) "A" financial strength credit rating. Treated as regulatory capital this transaction maximizes value by lowering its weighted average cost of capital.

Challenger remains a committed participant in the annuity market.

• Sales continue to remain at levels that naturally replenish the book.

Financial Planning

Financial Highlights

Refocused on value drivers

* Financial Planning assets includes revenue generating funds under advice in 1H07/2H06 - pre 2H06 data is not avaliable. Estimates of \$4.9bn have been used for comparative purposes in 1H06

FUM: \$7.7bn up 13% from previous half

• . Revenue generating funds under advice \$5.6bn
• · Funds under administration \$2.1bn

Net income: \$72m up 15% on pcp

* \$24m up 4% on pcp

Expenses: \$21m up 24% on pcp

• Of the \$4m increase in expenses on pcp, \$1.2m relates to restructure charge

EBIT: \$3m down 40% on pcp

RONA: 5% down 40% on pcp

. Challenger remain committed to reaching its 18% RONA target by 2009

Performance Highlights

Initial steps towards achieving 18% RONA in 2009

Financial Planning presents a working example of how Challenger can leverage its core competencies in delivering value to all stakeholders. As a business it has all the elements to fit Challenger's strategy including;

• · Superannuation market growing through regulated Superannuation Guarantee Contribution Scheme
• . Opportunity to implement core platforms and processes that will drive efficiency gains and scale benefits
• · Open architecture business model provides differentiation within the Financial Planning industry
• · Provides access for Challengers products and services

Strategic Review: completed during 1H07 and endorsed by the Board. Key findings from review noted an opportunity to 'industrialise' the business and included;

• · Standardising licensee essential services
• Offering value adding optional services to optimise member firm efficiencies
• . New advisor remuneration scheme to enhance alignment between client, advisor and shareholder goals
• · Utilising scale of the network consisting of over 400 planners

Roll out of the review changes to reposition the business to commence from 1 July 2007. Challenger expects to see the intital results in 2H08.

Appendix 4D For the Half year ended 31 December 2006

The following sets out the requirements of Appendix 4D with the required information provided within this document or cross-referenced to the reviewed 2006 Interim Financial Report, which is attached.

1. Reporting period and previous corresponding period details

Reporting period: 31 December 2006 Previous corresponding reporting period: 31 December 2005

2. Results for announcement to the market

Refer to the attached market release for the Half year ended 31 December 2006 for management commentary on the results.

3. Net tangible assets per security

4. Entities over which control has been gained or lost during the period

Refer to 31 December 2006 Interim Financial Report attached. Note 15: Acquisitions and disposals of controlled entities.

5. Dividends

Refer to 31 December 2006 Interim Financial Report attached. Notes to the financial statements - Note 6: Dividends paid and proposed.

6. Dividend Reinvestment plans

Challenger Financial Services Group Limited has suspended its Dividend Reinvestment Plan.

7. Details of Associates

8. Foreign entities

Not applicable.

9. Interim Financial Report

This report is based on the 31 December 2006 Interim Financial Report attached. The 31 December 2006 Interim Financial Report has been subject to an independent review by the external auditors and is not subject to dispute or qualification.

Welcom

Christopher Robson Company Secretary 23 February 2007