Diversified investment company Argo Investments Ltd has posted a fall in annual net profit for the June 30 year, but one that was better than that recorded at the December half way.

Argo had reported a 23.6% fall in interim earnings before unrealised gains and losses to $71.6 million, but yesterday it said the company ended the year down 12.6%, thanks to a stronger second six months.

Operating profit, the company's preferred measure of performance, excluding realised gains and losses from the sale of long-term investments, was down to $142.8 million, meaning the company matched first half earnings in the second six month period.

But including these gains and losses, the result for the year was $153.9 million, up 20.8% on the previous corresponding period's $127.4 million.

CEO Rob Patterson said investment income improved in the second half of the year, reflecting a larger cash balance and higher interest rates.

Argo said yesterday it has $240 million in cash reserves and no debt, so the company's second half investment income was a bit higher thanks to higher rates from the three increasers from the Reserve Bank in February, March and April.

"We expect to see modest growth in Australian corporate profits and dividends in the period ahead, despite continuing economic and political uncertainties, both locally and internationally," Mr Patterson said in a statement to the ASX.

Argo declared a steady final dividend of 13c a share, taking its full year dividends to 25c, down from 27c last year after the 2c a share cut in the interim.

Due to uncertainty in the share market over the second half of the year, Argo said it made only a small number of investment purchases, the largest being $7.8 million in Commonwealth Bank of Australia, $6.9 million in Lend Lease Group and $6.8 million in Woodside Petroleum.

Argo's holdings in Bendigo and Adelaide Bank Ltd were sold in the year, while its holdings in James Hardie Industries SE and Macquarie Group Ltd were reduced.

Argo's principal investments at June 30 were BHP Billiton Ltd ($266.1 million), Westpac Banking Corporation ($183.6 million), Rio Tinto Ltd ($159.6 million), Macquarie Group Ltd ($132.8 million) and Wesfarmers Ltd ($132.1 million).

With its cash pile and no debt, Argo is naturally on the look out for some sharemarket bargains.

But it doesn't seem overly eager to spend aimlessly, saying yesterday, "We expect to see modest growth in Australian corporate profits and dividends in the period ahead. With current cash reserves of about $240m and no debt, Argo remains ready to take advantage of opportunities as they present themselves in the share market".

It listed a series of developments in markets that it was monitoring.

Globally, these included "the success of governments in supporting their economies with stimulus spending has led to a tentative global economic recovery.

"However, as the stimulus fades and with the US housing industry looking to be further deteriorating, the outlook for growth is unclear.

"In addition, gross government debt of the developed countries now exceeds 100% of their aggregate GDP and as a result, many of these governments are now being forced to reduce budget deficits through austerity measures and raising taxes.

"This process will reduce growth and it is likely that these economies will be supported by accommodative monetary policies for an extended period of time.

"For these reasons, financial stress and risk levels remain elevated and the global economic recovery is still fragile.

"China and the developing countries have continued to provide strong growth in the first half of calendar 2010.

"While this rate of growth is slowing, expectations are that China in particular will return to a more sustainable rate of growth following its excessive stimulus spending on infrastructure and real estate during the global financial crisis.

"This has been and will continue to be particularly positive for Australia, with its relatively strong economy being reflected by six interest rate rises since October 2009 and a relatively low unemployment rate."

At home, Argo said the these "issues have dominated the Australian share market in recent times and added to the volatility.

"The release of the Henry Review and the Resources Super Profits Tax since watered down to the Mineral Resources Rent Tax, caused global uncertainty towards Australia as an investment location.

"The backlash from the mining industry and public contributed to the removal by the Labor party of Kevin Rudd as Prime Minister.

"His replacement, Julia Gillard, has called a Federal election to be held on 21 August, 2010.

"The pre-election period adds to market uncertainty with the two major parties having very different policies on a number of investment sectors, including mining and telecommunications."

Argo shares ended the day up 7c at $5.99.