MLC investment performance review

1. MLC investment performance review Updated to 31 December 2009

2. General advice warning and disclaimer Any advice in this communication has been prepared without taking account of individual objectives, financial situation or needs. Because of this you should, before acting on any information in this communication, consider whether it is appropriate to your objectives, financial situation and 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) and MLC Nominees Pty Ltd (ABN 93 002 814 959) as trustee of The Universal Super Scheme (ABN 44 928 361 101), 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. An investment in any product offered by a member company of the National group does not represent a deposit with or a liability of the National Australia Bank Limited ABN 12 004 044 937 or other member company of the National Australia Bank group of companies and is subject to investment risk including possible delays in repayment and loss or income and capital invested. None of the National Australia Bank Limited, MLC Limited, MLC Investments Limited or other member company in the National Australia Bank group of companies guarantees the capital value, payment of income or performance of any financial product referred to in this publication. 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 return figures reported are before management fees and taxes, and for the period up to 31 December 2009, unless otherwise stated. The specialist investment management companies are current as at 31 December 2009. Funds under management figures are as at 31 December 2009, unless otherwise stated. Investment managers are regularly reviewed and may be appointed or removed at any time without prior notice to you.

3. AGENDA • Overall results • The market environment • Drill down by asset class Slide 3

4. 1. Overall results

5. MLC Horizon 4 – Super • Highlights: • Portfolio benefited from higher allocation to growth assets in a rising market environment. • A rising $A helped further as the portfolio has a higher allocation to hedged assets from overseas. • Private Assets was the only dampener on absolute returns, on account of delayed valuations associated with the sector. • Marked turnaround in Global Shares (excess +3.9, unhedged) and positive absolute returns for the debt strategy (+10.7%) coupled with continued strength in Global Property (excess +6.3%) helped the most in overall performance. Slide 5

6. MLC Horizon 4 – total returns Slide 6

7. MLC Horizon 4 – asset class contribution Slide 7

8. MLC Horizon 5 – Super • Highlights: • Portfolio benefited from higher allocation to growth assets in a rising market environment • A rising $A helped further as the portfolio has a higher allocation to hedged assets from overseas. • Private Assets was the only dampener on absolute returns, on account of delayed valuations associated with the sector. • Marked turnaround in Global Shares (excess +3.9, unhedged) and positive absolute returns for the debt strategy (+12.4%) coupled with continued strength in Global Property (excess +6.3%) helped the most in overall performance. Slide 8

9. MLC Horizon 5 – total returns Slide 9

10. MLC Horizon 5 – asset class contribution Slide 10

11. 2. The market environment

12. Market environment - asset class returnsfor the period ending 31 December 2009 * Slide 12

13. Market environment • Worst of the crisis over, but serious imbalances and issues remain unresolved • The major economies are in the early stages of economic recovery, but… • …the recovery is going to be subdued – consumers (especially in the English speaking world) will take time to repair balance sheets, re-build savings • The Australian economy has fared relatively well through the crisis, and growth is likely to pick-up over the coming year • Prospects for the emerging economies are brighter than they’ve been for many years • Interest rates likely to stay lower for longer – world’s central banks won’t mind a bit more inflation? • Investment returns in this recovery are likely to be more modest than we’ve been used to • How long before memories fade? Longer this time than usual! Slide 13

14. 3. Drill down by asset class Australian shares

15. Australian shares - performance • Highlights: • Outperformed for much of the last 2 GFC years, but a late-in-year rally by BHP Billiton (2nd largest strategy underweight) pushed return below market (still a great absolute return) • 6/10 managers outperformed, stock specific not style driven. • Positives: o/w Wesfarmers, ANZ, J.Hardie Negatives: u/w BHP, CBA, o/w NAB, Suncorp-Met. • Some managers believe in the economic/earnings recovery story (so o/w cyclicals) but some don’t (reducing cyclicals, returning to defensive stocks where earnings outlook more certain). Portfolio themes are mixed - o/w Building Materials, Media, Telecom • - u/w Banks, Resources, REITs Slide 15

16. Australian shares – total returns Slide 16

17. Australian shares – excess returns Slide 17

18. Australian Shares – manager contribution Contributors: • Concord Capital +10.3% : o/w ANZ, Westpac, James Hardie, Billabong, JB Hi-Fi • JF Capital Partners +10%: o/w Rio Tinto, Felix Resources (takeover), Independence Group u/w QBE • Balanced Equity +6.5%: o/w ANZ, Westpac, Lend Lease, Orica, u/w Westfield • Northward +1.8%: o/w Asciano, Rio Tinto, CBA, • Dimensional +1.4%: o/w Macquarie, incitec Pivot, Alumona, Downer EDI • Maple-Brown Abbott +0.4%: o/w Wesfarmers, ANz, Rio Tinto, Wesfarmers Detractors: • Northcape -1.5%: zero CBA and Wesfarmers, o/w NAB, Sonic Healthcare, Singtel, Brambles • Wallara -2.5%: o/w Stockland, NAB, Origin Energy, u/w CBA • Contango -4.6%: o/w NAB, Woolworths • Lazard -12.7%: zero BHP Billiton Slide 18

19. 3. Drill down by asset class Global shares

20. Global shares - performance • Highlights: • MLC Global Shares Strategy out performed index over the quarter and 1 year, while still underperforming over the longer 3 and 5 year terms. • Unhedged investors were dampened by the $A, which rose 24% against the Trade Weighted Index. Hedged investors benefited with 1-year returns of 35.1% (before fees and taxes). • Performance driven by global rally in all market segments. Developed mkt up +1.4, EM +39%. • Benefited from defensive positioning at the beginning of the year by Wellington and Walter Scott. • Higher volatility returns were driven by new manager Sands Capital and Dimensional. Slide 20

21. Global shares – total returns Slide 21

22. Global shares – excess performance Slide 22

23. Global shares – manager contribution Contributors: • Dimensional (+7%) – Riskier parts of the market was very much in favour throughout 2009. • Wellington (+2%) – Defensive/high quality positions adopted early 2009. • Walter Scott (+1%) – Low debt, high EPS growth focus benefited early, gave up some gains with risk appetites increasing. • Of the new managers, over the quarter all outperformed the index. Sands (+4.6%, EM holdings and growth dominated stocks). Tweedy (+2.7 on higher quality value focus). Mondrian (+0.8) and Hardin Loevner (+0.1) muted as dividend focus shares grew gradually. Detractors: • Capital (-2.7%) – Too early to comment as data is not available, but may be driven by stock selection in materials. • Over the quarter, Dimensional (-3.2%) faced negative sentiments around riskier small-cap stocks and Wellington (-0.2%) gave up some gains from the previous two quarters (too early to comment due to lack of data). Slide 23

24. 3. Drill down by asset class Australian property

25. Australian property - performance • Highlights: • Massive capital raisings have helped stabilise the sector but distributions have been slashed/significantly diluted • 1 year absolute return back into positive territory (but still much lost ground to make up) • MLC Australian Property has produced stellar outperformance vs index over all measurement periods (albeit absolute returns for 3-5 years are negative). Both managers outperformed by substantial margins in all periods. • This result is due to stock selection of the underlying managers, particularly Resolution Capital, whose longstanding preference for quality REITs (i.e. management competence, strategic direction, transparency, prudently geared) helped the Fund avoid the worst of the Aussie REIT train wreck in the last 2-3 years. • MLC’s mandate initiative given to Resolution a number of years ago which allows them to invest in global REITs also assisted greatly as the Australian sector imploded. Slide 25

26. Australian property – total returns Slide 26

27. Australian property– excess returns • Outstanding long term performance track record, even more so in the last 2-3 years when the sector has been in crisis. • Astute stock selection, predominantly by Resolution (70% of the strategy). Their preference for REITs with strong cashflows, balance sheets, management and quality property have been very rewarding. • MLC’s decision to allow Resolution to own a component of their mandate in non-Australian REITs has also been beneficial as it has allowed Resolution to select GREITs with the characteristics they prefer, and in more plentiful supply than is a available in Australia. Slide 27

28. Australian property – manager contribution Contributors: • Avoiding the worst of the disasters in the sector (too many to mention!) • Focus on quality REITs • Inclusion of global REITs which performed better than most AREIT Detractors: • Magnitude of excess returns has declined in the last few months as the market’s risk appetite has risen and price performance of poorer quality REITs has improved. Slide 28

29. 3. Drill down by asset class Global property

30. Global property - performance • Highlights: • MLC global property performance has exceeded index over all periods reviewed. • Consistent manager outperformers have been Resolution Capital and Morgan Stanley while LaSalle has lagged (more diversified portfolio with a higher US exposure). Preference for GREITs with quality cash flow, balance sheets and management have clearly helped. • Particularly beneficial over the year has been ownership of Asian REITs, especially Hong Kong (Link REIT), Singapore and Japan as well as selected REITS Unibail (France). • Like Australia, massive capital raisings ($50bn) have helped stabilise the sector. Slide 30

31. Global property – excess returns Slide 31

32. Global property – manager contribution Contributors: • Morgan Stanley’s and Resolution’s preference for Asian based REITs who have generally outperformed the rest of the world for much of the last 1-2 years. For example, Link in Hong Kong. • Selective holdings of other REITs with strong individual characteristics (Simon Property Group in the US, Unibail-Rodamco in France, British Land and Land Securities in UK). Detractors: • La Salle’s decision to have a higher exposure to US REITs and less exposure to Asia. Slide 32

33. 3. Drill down by asset class Global private equity

34. Global private assets – performance • Highlights: • MLC Global Private Equity strategy out-performed public markets index over the quarter and longer 3 and 5 year terms. The 1-year return is extremely low due to the delay in which valuations of underlying investments are fed into the returns. • Worst of the portfolio valuations are now in and we expect some moderation over the next two quarters. Our excellent performance is due to the higher quality assets and diversification of the portfolio across 2000 investments world wide. • Program remains well diversified and we are now seeking more direct investments, thereby saving fees in accessing opportunities. • Listed market performance is essential for deals looking at exits, and valuations will need to hold for the overall PE market to fully normalise. Slide 34

35. 3. Drill down by asset class Long Term Absolute Return Strategy

36. Long Term Absolute Return – performance • Highlights: • Exposure to growth assets helped overall returns get back to positive levels, across shorter time horizons. • Increased gearing mid –year, had a positive impact. Slide 36

37. 3. Drill down by asset class Diversified Debt

38. Diversified Debt assets - performance • Highlights: • The strategy produced a very healthy return this year, rebounding from the dismal return it produced in 2008. • Maintaining exposure to higher credit risk securities, when markets were at their extreme, did not take long to pay-off. Slide 38

39. Diversified Debt – excess returns Slide 39

40. Diversified Debt – sector contribution Contributors: • 2009 was completely different to 2008. The sectors with the greatest credit risk paid the highest returns this year ie real return and global high yield debt. • Returns on the higher risk sectors started rising from March 2009 when confidence started returning to markets. By the end of 2009 the rewards have been handsome. Detractors: • Nominal bond sectors had a relatively weak year. With the global economy recovering, the market started to factor in increases in interest rates. When interest rates rise, the value of bonds fall. • Australian inflation-linked bonds was the only debt sector to produce a negative return this year. The government increased issuance (supply) of these securities which pushed prices down. Although they are weak in the current environment, inflation-linked bonds provide an excellent hedge when inflation rises. Slide 40

41. Diversified Debt – manager contribution Contributors: • All but 1 manager exceeded their respective benchmark’s return over the quarter. • Most managers exceeded their benchmark for the year because they maintained their exposure to higher credit securities during the recovery. • NSIM and UBS outperformed their benchmarks by a considerable margin, boosting returns from one of the weakest sectors this year. Detractors: • Bridgewater and BlackRock timed their reduction in exposure to credit risk poorly and did not get all the upside when markets continued to recover strongly throughout 2009. • Oaktree underpeformed in a sector that produced a massive return this year. Slide 41

42. 3. Drill down by asset class IncomeBuilder

43. MLC IncomeBuilderTM - performance • Highlights: • MLC IncomeBuilder outperformed the index over 3 and 5 years but underperformed in the year. • Principal market relative performance detractors in ’09 were u/w CBA, Macquarie, Orica and o/w NAB, Fosters, Brambles, Fairfax Media, Telstra. Note these positions have been made with the primary objective (income growth) in mind (plus MBA’s value preference). Index relative performance is a secondary objective of the Fund. • The Nov. ‘09 quarterly distribution of 1.85c (Unit Trust) was 33.5% below p.c.p. ‘08. This is consistent with a difficult period for corporate earnings in the last 1-2 years due to the economic slowdown and the subsequent decision by many companies to cut dividends (e.g. NAB’s last half year d.p.s. was 25% below p.c.p.) • Even though corporate earnings may begin to recovery this year, dividend growth is expected to lag, so will the growth in IB’s income distributions. Recovery may not be evident until 2011. Slide 43

44. IncomeBuilder – distribution performance • Highlights: • Fund’s underlying distribution history has been strong (income has fallen in only 2/14 years) • However, 2010 and 2011 will almost certainly see lower income distributions due to dividend cutbacks by companies in response to lower profits (November quarter 2009 distribution 33.5% below 2008’s) • Future capital gains are not easy to forecast as a multitude of factors can impact (takeovers, managers’ stock selection). Note that this is a fund where tax is monitored, considered as part of stock selection decisions and where possible minimised. Slide 44

45. MLC IncomeBuilderTM – manager contribution Contributors: • o/w ANZ, Mirvac, AXA Asia Pacific U/w QBE Insurance, CSL, Woolworths Detractors: • o/w Telstra, NAB, Brambles, Fosters, Fairfax Media U/w CBA, Macquarie Group Slide 45