MLC Investment Management Annual Investor Review Main pack: Wholesale 30 June 2011

1. MLC Investment ManagementAnnual Investor Review Main pack: Wholesale30 June 2011

2. General advice warning and disclaimer This information has been provided by MLC Limited (ABN 90 000 000 402) a member of the National Group, 105–153 Miller Street, North Sydney 2060. Any opinions expressed in this communication constitute our judgement at the time of issue and are subject to change. We believe that the information contained in this communication is correct and that any estimates, opinions, conclusions or recommendations are reasonably held or made as 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 communication. Past performance is not indicative of future performance. The value of an investment may rise or fall with the changes in the market. Please note that all performance reported is before management fees and taxes, unless otherwise stated. The specialist investment managers are current as at the date this communication was prepared. Investment managers are regularly reviewed and may be appointed or removed at any time without prior notice to you. This communication contains general information and may constitute general advice. Any advice in this communication has been prepared without taking account of individual objectives, financial situation or needs. It should not be relied upon as a substitute for financial or other specialist advice. Before making any decisions on the basis of this communication, you should consider the appropriateness of its content having regard to your particular investment objectives, financial situation or individual needs. You should obtain a Product Disclosure Statement or other disclosure document relating to any financial product issued by MLC Investments Limited (ABN 30 002 641 661 [include AFSL for PDSs/FSGs/Annual Reports]) and consider it before making any decision about whether to acquire or continue to hold the product. A copy of the Product Disclosure Statement or other disclosure document is available upon request by phoning the MLC call centre on 132 652 or on our website at mlc.com.au.

3. Table of contents

4. 1. Key economic themes • Global economy in summary • The Good • Industrial Production has surged in Japan, both May and June, which should see the economy recover strongly in the second half of 2011. • The soft patch in global economic growth, affected by the Japan experience, will likely gradually improve alongside improvement in global trade activity as Japan manufacturing switches back on • The Bad • US economic data has decelerated in line with global activity • China continues to slow from its previous breakneck speed and is likely to see GDP growth slipping • and The Ugly • Increasing concerns about risk of default in Europe, particularly focussed on the debt woes of the Greek government • The imminent end of the US Federal Reserve’s second period of bond buy backs, known colloquially as QE2.

5. The two speed world economy 20 15 US 10 Europe 5 Japan UK 0 China -5 India -10 -15 Q2 2006 Q2 2007 Q2 2008 Q2 2009 Q2 2010 Q2 2011 Real GDP - annual growth (%) Source: Datastream

6. Most developed nations are some distance away from their pre-GFC peak output 5 3 1 -1 -3 -5 -7 -9 -11 -13 -15 NZ US UK Italy Spain EA16 Japan Austria Ireland France Finland Canada Greece Australia Portugal Belgium Germany Netherlands Latest GDP level vs pre GFC peak (%) Source: Datastream

7. US consumer spending supported by jobs, income growth Private sector wage and salary The US private sector IS hiring incomes are rising m/m% (with 3mth moving average) '000 Hours 1.5 600 35 1.0 400 35 0.5 200 34 0.0 0 -0.5 -200 34 -1.0 -400 33 -1.5 -600 Private payrolls - monthly change (lhs) 33 -800 -2.0 Average weekly hours - private non-farm (rhs) -1000 32 -2.5 Jan-99 Jan-02 Jan-05 Jan-08 Jan-11 Jun-07 Jun-08 Jun-09 Jun-10 Source: Datastream

8. China is “tapping the brakes” to slow things Source: Datastream

9. 1. Key economic themes • Australian economy in summary • The Good • Indications of investment activity remain extremely buoyant • A raft of new infrastructure projects linked to mining are likely to boost investment activity over the next year, seeing GDP accelerate • The Bad • Activity has moderated with an ebbing of confidence in the outlook of the economy • A combination of the strong Australian dollar and relatively high interest rates is having a depressing effect on many parts of the economy, not directly affected by the mining boom. • and The Ugly • Increasing signs of a downturn in housing prices across the country, while, at the same time, new housing activity remains lacklustre • Consumer spending growth has been anaemic • Business confidence in key sectors such as manufacturing, tourism and retailing has been deteriorating

10. Australian dollar above long term fair value Source: Datastream

11. The rise and rise of mining investment Capital expenditure in mining as a % of total 70 60 50 Projections for for 2010/11 and 2011/12 are based on latest capex survey estimates. 40 30 20 10 0 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 1987/88 1988/89 1989/90 1990/91 1991/92 1992/93 1993/94 1994/95 2006/07 2007/08 2008/09 2009/10F 2010/11F 2011/12F Source: ABS, MLC Investment Management

12. Asset class returns Asset class performance 45.0% 35.0% 25.0% 15.0% 5.0% -5.0% -15.0% Australian Global Global Emerging Australian Global Australian Global Global High Inflation- Cash Shares Shares Shares Markets Property Property Bonds Bonds Yield Bonds Linked (hedged) (unhedged) Securities Securities (hedged) (hedged) Bonds Quarter to Jun-11 % p.a. 1 Year to Jun-11 % p.a. 3 Year to Jun-11 % p.a. 5 Year to Jun-11 % p.a. Index data source: Australian Shares - S&P/ASX 300 Accumulation Index; Global Shares (hedged) - MSCI All Countries (A$ hedged); Global Shares (unhedged) - MSCI All Countries; Australian Property Securities - S&P/ASX 300 LPT Accumulation Index; Global Property Securities - UBS Global REIT (hedged); Australian Bonds - UBS Composite Bond (all mats); Global Bonds (hedged) - BCGA Global Agg (hedged); Global High Yield Bonds (hedged) - BCGA US Corp HY BB/B (hedged), Australian Inflation Linked Bonds - UBS Inflation Linked Bonds (all mats); Cash - UBS Australian Bank Bill;

13. Key investment themes More short term market volatility predicted by most of MLC’s managers with modest prospective returns Dividend recovery continues however, external macro risks and domestic risks (2 speed economy) have constrained market returns Globally, Financials struggled over the quarter due to increased risk aversion whilst traditionally defensive sectors, such as Healthcare and Consumer Staples surged Over the year however, most sectors, both domestically and globally, posted strong positive returns, with the exception being the Australian Information Technology sector AUD tailwind to hedged returns, headwind for unhedged following its 27.5% rise against the USD over the year

14. 2. What has MLC been doing? Change in manager ownership: On 21 June 2011 Franklin Templeton Investments Australia Ltd (“Franklin Templeton”) announced the purchase of Balanced Equity Management Pty Ltd (Australian Equity Manager). Interestingly, Franklin Templeton is also one of MLC’s managers As with any personnel or ownership changes in any of the managers engaged by MLC, the MLC Investment Management research team will continue to monitor and assess the implications of the change in ownership, as part of the ongoing research of all incumbent managers Strategic Overlay: While the past quarter had several significant events, none drastically altered the key investment themes we focus on. As such we have not made any change to our existing strategic overlay positions

15. 3. MLC Horizon 4 Balanced Portfolio Performance overview to 30 June 2011 • Highlights: • It was a mixed bag over the quarter with some asset classes making positive contributions and others not. However, over the year all asset classes were positive. • Standout performers for the quarter came from the Global REITS sector (+3.8%). Australian Inflation linked Securities also performed well as yields fell in Australia and globally. • Australian Shares were the main detractor over the quarter as the asset class was buffeted by short term volatility, to some extent driven by global factors. Over the year all managers in this asset class made solid contributions. • The debt strategy continued its recent strong performance with all but 1 manager making positive contributions over the quarter. Over the year Franklin Templeton (All Maturities) and W.R. Huff (Extended Credit) were standouts with performance close to 20%. Source: MLC Investment Management

16. 3. MLC Horizon 4 Balanced Portfolio Historical Absolute Performance MLC Wholesale Horizon 4 Balanced Portfolio (after taking into account fees) 20% 15% 10% 5% Return % p.a. 0% -5% -10% -15% 1 Year Ended 30 June 5 Years Ended 30 June -20% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 5 year returns have always been positive Source: MLC Investment Management

17. 3. MLC Horizon 4 strategy - asset class contribution Contribution to Total Return by Asset Class MLC Wholesale Horizon 4 Balanced Portfolio (before taking into account fees) 4 3 2 (annualised for periods greater than 1 year) Return Contribution % 1 0 -1 -2 Australian Shares Global Shares - Global Shares - Global Property LTAR Debt Securities Hedged Unhedged Securities 3 months to Jun-2011 1 year to Jun-2011 3 years to Jun-2011 5 years to Jun-2011 Source: MLC Investment Management

18. 3. Performance attribution MLC’s underweight position to Government securities has benefited the portfolio over the last year with the broad Barclays Index out-performing the Treasuries Index. Our increased weighting to Unhedged Global Shares has detracted over the last year as the AUD has continued to appreciate. In Australian Equities, JCP Investment Partners stock selection expertise has seen them add significant value above the index, with overweights in midcap miners, NAB and Intoll adding the most value. Globally, Tweedy Browne has shown consistent outperformance over the quarter and year, with the Consumer Staples and Industrial Holding sectors delivering up some first-rate opportunities.

19. 3. Australian shares strategy – manager contribution 4% 2% Excess Return vs S&P/ASX 300 Accumulation Index 0% (annualised for periods greater than 1 year) -2% Quarter to Jun-11 1 Year to Jun-11 3 years to Jun-11 5 Years to Jun-11 -4% -6% Wallara Concord Northcape Dimensional Maple-Brown Concentrated Abbott JCP - Australian Share Northward Capital Diversified Balanced Equity - Balanced Equity - Strategy Concentrated JCP - Active Core Active Core Manager performance in excess of the index Australian Share Diversified Strategy (before taking into account fees and tax) Source: MLC Investment Management

20. 3. Manager performance* *The performance on this page represents our Australian Shares div strategy pre fees. Source: MLC Investment Management

21. 3. Manager performance cont…* *The performance on this page represents our Australian Shares div strategy pre fees. Source: MLC Investment Management

22. 3. Global shares strategy – manager contribution Manager Performance in Excess of the Index Global Share Strategy (before taking into account fees and tax) 10% 8% 6% 4% Excess Return vs MSCI All Country World Index (annualised for periods greater than 1 year) 2% 0% -2% -4% -6% Capital Carnegie Walter Scott Harding Sands Capital Mondrian Tweedy, Dimensional Global Share International Loevner Browne Strategy (unhedged) Quarter to Jun-11 1 Year to Jun-11 3 years to Jun-11 5 Years to Jun-11 Source: MLC Investment Management

23. 3. Manager performance* Source: MLC Investment Management *The performance on this page represents our Global Shares strategy pre fees.

24. 3. Manager performance cont…* Source: MLC Investment Management *The performance on this page represents our Global Shares strategy pre fees.

25. 3. Global property strategy – manager contribution Manager Performance in Excess of the Index Global Property Strategy (before taking into account fees and tax) 7% 5% 3% Excess Return vs UBS Real Estate Investors Trust Index (annualised for periods greater than 1 year) 1% -1% -3% -5% LaSalle Investment Morgan Stanley Resolution Capital Global Property Securities Management Strategy (Hedged) Quarter to Jun-11 1 Year to Jun-11 3 years to Jun-11 5 Years to Jun-11 Source: MLC Investment Management

26. 3. Manager performance* Source: MLC Investment Management *The performance on this page represents our Global Property Securities strategy pre fees and tax. ** The global property managers are benchmarked against the unhedged index.

27. 3. Debt strategy Contribution to Total Return by Asset Class MLC Wholesale Horizon 4 Portfolio Diversified Debt Strategy (before taking into account fees) 3.0% 2.5% 2.0% (annualised for periods greater than 1 year) Return Contribution % 1.5% 1.0% 0.5% 0.0% -0.5% Australian Australian Global Global Non- Global Global Multi- Global High Global Bank Global Bonds Inflation-Linked Government Government Absolute Sector Bonds Yield Bonds Loans Mortgages Bonds Bonds Bonds Return Bonds Quarter to Jun-11 1 Year to Jun-11 3 years to Jun-11 5 Years to Jun-11 Source: MLC Investment Management

28. 3. Debt strategy Yields rose in Australia and major overseas bond markets over the year Our managers are generally positioned for rising interest rates, due to signs of economic improvement, and therefore most have outperformed their market benchmarks over the year Strongest performing sectors were global non-government bonds and less traditional bonds such as non-investment grade, Australian and global inflation-linked, emerging markets and global multi-sector bonds In the last quarter, yields fell in Australia and globally due to increased risk aversion and softening of global economic activity Australian yield curve relatively flat although positive sloping for longer terms. Shorter end of the curve is slightly negative sloping with 2 year government bond yield 4.74%, below the cash rate 4.75%

29. 4. Peer relative performance Q2 Q2 Q3 Q2 Q3

30. 4. Outlook – Insight from our managers As we move ahead towards the August reporting season it is likely that earnings risk will be a key issue, caused by the strong Australian dollar, weak consumer demand and the impact from numerous natural disasters that will all contribute to lower earnings for many Australian listed companies. - JCP Investment Partners Improving real estate fundamentals should help drive healthy earnings growth over the next few years. We expect worldwide earnings per share growth to be in the mid to high single-digits per annum through 2013, with the strongest growth in the US, UK and Hong Kong. - LaSalle Investment Management Global -Over the year, the standout factor which came to the fore was the appreciation of the Australian dollar ($A). According to our in-house purchasing power parity calculations, the $A is now over 40% over-valued against the USD. This presents a potential gain for Australian investors with international holdings, assuming a return to fair value. The timing of such is uncertain, but historically currencies have not stayed as dear for sustained periods. - Mondrian Investment Partners

31. 4. Scenario probability weighted real returns Scenario Probability Weighted Real Returns (June 2011) (7 years, 0% tax with franking credits, pre fees, pre alpha) 25% 25% Average of best 10% tail Average of worst 10% tail Probability weighted expected returns 20% 20% Long-term 'normal' return 15% 15% 10% 10% Return % p.a. 5% 5% 0% 0% -5% -5% -10% -10% Domestic Global equity Global equity Emerging Domestic Short duration All maturities Domestic Domestic Global Global Domestic Global high Equity Unhedged Hedged Markets cash Diversified Diversified nominal nominal nominal nominal inflation linked yield debt World Debt Debt government corporate government corporate (extended Unhedged credit) Source: MLC Investment Management

32. 4. MLC’s prospective returns - Horizon Scenario Probability Weighted Real Returns (June 2011) (7 year scenarios, 0% tax including franking credits, pre investment fees, pre alpha) 20% 20% Average of best 10% tail Average of worst 10% tail Probability weighted expected return Long-term 'normal' return 15% 15% 10% 10% Return % p.a. 5% 5% 0% 0% -5% -5% -10% -10% MLC Horizon 1 MLC Horizon 2 MLC Horizon 3 MLC Horizon 4 MLC Horizon 5 MLC Horizon 6 MLC Horizon 7 LTAR Neutral LTAR Strategic Overlay Source: MLC Investment Management

33. 4. MLC’s prospective returns and outlook Credible sustainable future scenarios all seem to involve (at best) modest GDP growth. While that constrains earnings potential, persistent low cash rates support global shares. Deflation will likely remain a stronger force than inflation for a prolonged period. Despite this global sovereign bond markets are expensively priced. We have increased the focus on more muted and adverse growth paths. This is in response to a shift in focus of major advanced countries to tighter fiscal policy. The possibility of a second round credit crunch or of an escalation of sovereign risks remains

34. 5. Key messages – MLC Horizons Diversified across 14 asset classes and sub asset classes including overseas investment exposure Include Alternative and Absolute Return investments such as Insurance Related Investments and multi sector strategies Actively managed using some of the best available managers from around the world Are robustly tested using sophisticated scenario analysis Have a good long term track record Backed by MLC Investment Management, a highly respected money manager.

35. 6. MLC Diversified fund performance table Performance to 30 June 2011 Source: MLC Investment Management

36. 6. MLC asset class fund performance table Performance to 30 June 2011 Source: MLC Investment Management

37. 6. MLC asset class fund performance table Performance to 30 June 2011 Source: MLC Investment Management