PRE SELECT UPDATE

1. This material is not for circulation to retail investors 30 September 2016 PRE SELECT UPDATE

2. Important information The information in this presentation has been provided by Navigator Australia Limited (ABN 45 006 302 987, AFSL 236466), a member of the National Australia Bank Limited (ABN 12 004 044 937, AFSL 230686) group of companies (NAB Group), 105–153 Miller Street, North Sydney 2060. NAB does not guarantee or otherwise accept any liability in respect of any financial product referred to in this presentation. This presentation has been prepared for licensed financial advisers only.  This document must not be distributed to “retail clients” (as defined in the Corporations Act 2001 (Cth)) or any other persons. This information is directed to and prepared for Australian residents only. This information may constitute general advice. It has been prepared without taking account of an investor’s objectives, financial situation or needs and because of that an investor should, before acting on the advice, consider the appropriateness of the advice having regard to their personal objectives, financial situation and needs. You should obtain a Product Disclosure Statement (PDS) relating to the financial products mentioned in this communication issued by Navigator Australia Limited, and consider it before making any decision about whether to acquire or continue to hold these products. A copy of the PDS is available upon request by phoning the MLC call centre on 132 652 or on our website at mlc.com.au Past performance is not a reliable indicator of future performance. The value of an investment may rise or fall with the changes in the market. The performance returns in this communication are reported before deducting management fees and taxes unless otherwise stated. Actual returns may vary from any target return described in this presentation and there is a risk that the investment may achieve lower than expected returns. Any opinions expressed in this presentation constitute our judgement at the time of issue and are subject to change. We believe that the information contained in this presentation is correct and that any estimates, opinions, conclusions or recommendations are reasonably held or made at the time of compilation. However, no warranty is made as to their accuracy or reliability (which may change without notice) or other information contained in this presentation. Navigator Australia Limited may use the services of NAB Group companies where it makes good business sense to do so and will benefit customers. Amounts paid for these services are always negotiated on an arm’s length basis.

3. Table of contents 1. Market performance 2. Portfolio positioning 3. Fund performance

4. 1. Market performance • Share markets had another strong quarter, although the rising AUD lowered returns from unhedged global shares. • Over the past year we’ve seen alternating episodes of market weakness and recovery. Market behaviour has been contingent on monetary policy decisions of central banks: • While the Fed has delayed raising rates, September’s policy meeting noted the case for higher interest rates had “strengthened”. • Brexit initially undermined confidence with a dramatic fall in the sterling exchange rate, however investors took comfort in the UK central bank’s interest rate cut in August which supported the UK share market.

5. Market performance Not a bad year for share investors Source: Iress (returns are in local currency terms) The past year has been characterised on average by a ‘risk-on’ environment with shares and the AUD rallying. The rise in share prices over the past quarter has reduced future return potential and increased risk. .

6. Market performance AUD vs interest rate gap Source: Reserve Bank of Australia, Federal Reserve Bank of St Louis Over long periods having exposure to foreign currencies (ie unhedged global shares) has been beneficial to Diversified Fund’s returns. However, over the past year unhedged has underperformed hedged exposures due to the strength in the AUD. We remain 50/50 hedged to the Australian dollar. Despite recent strength, the AUD is under pressure given low commodity prices and the narrowing interest rate advantage. 6

7. Market performance Dividend yields vs bond yields Source: Citigroup, as at September 2016 Companies are having to encourage investors to take equity risk by offering higher dividends. Since the GFC listed companies have increasingly manufactured dividends eg by borrowing at low interest rates (and interest is tax deductible) to pay dividends. 7

8. Market performance Low interest rates encouraging companies to behave in ways detrimental to the economy Source: Financial Times, 7 September 2016 Recently Sanofi S.A. (European pharmaceutical company) and Henkel AG & Co KGaA (consumer products group) sold 2 to 3.5 year maturity bonds with a -0.05% yield. As far as we can tell, this is the first time that private sector bonds have been issued at negative nominal interest rates. Negative yields mean investors expect to get back a lower (nominal) amount than they invested. These companies are raising funds to increase cash earnings, not to support an expansion of business activities. Companies will only invest in capital if there is sufficient prospect of generating a high enough return to satisfy shareholders (ie their risk premium). Lack of adequate confidence in future demand is the primary constraining factor. Lower interest rates cannot fix this and indeed may be counter-productive. 8

9. Market performance Middle and lower income earners have a growing sense of injustice giving rise to protest politics Image source: The Fiscal Times By pushing up share prices, central bank policies have tended to increase inequality, and in doing so they may have unwittingly supported the rise of Donald Trump. While the US election no longer looks uncomfortably tight, it seems surprising that financial markets have not exhibited more nervousness. Brexit provided us with a reminder that in any two-horse race, each potential outcome should be taken seriously. Our base expectation is that a Donald Trump victory would be destabilising for financial markets. We can hope that November will result in a new President Clinton; however, Trump has changed the political landscape. The rise of Trump and extremist political parties in Europe, plus the Brexit vote, are a wake-up call for the establishment. We hope these forces empower governments to act more boldly and take on more of the burden of stimulating the economy, rather than relying on central banks. 9

10. Market performance Value stocks have bounced Source: JANA Corporate Investment Services Limited and MSCI, Barra Over the long-term, value-oriented stocks have historically produced higher returns than the broader global share market. However, value have underperformed growth stocks in most calendar years in the last decade. The graph shows the weak returns of value stocks over the last two years. However, value has recently “bounced” with defensive stocks falling out of favour. The 12 month return for value is now positive. In December 2015 we increased our allocation to value managers in our global shares strategy. Value in the Australian market has also rebounded. 10

11. 2. Portfolio positioning Pre Select Diversified Funds’ positions at 30 Sept 2016 Source: JANA Corporate Investment Services Limited

12. 2. Portfolio positioning Manager allocations at 30 September 2016 Source: JANA Corporate Investment Services Limited

13. 2. Portfolio positioning Top 10 stocks at 30 September 2016 Global equities Australian equities Source: JANA Corporate Investment Services Limited

14. 3. Fund performance Diversified Funds (before fees) Source: JANA Corporate Investment Services Limited

15. 3. Fund performance Diversified Funds’ contributors to returns Key contributors to most portfolios over the quarter • Australian shares • Global shares • Fixed income Source: JANA Corporate Investment Services Limited. Periods ended 30 September 2016

16. 3. Fund performance Asset class returns (before fees) Source: JANA Corporate Investment Services Limited