Investment Update for your MLC Horizon 1 Bond Portfolio Year to 31 March 2008

Any advice in this communication has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on any advice 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 product issued by MLC Investments Limited and MLC Limited 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 MasterKey Service Centre on or on our website at mlc.com.au. For the MLC Investment Trust, a Product Disclosure Statement is available at mlcinvestmenttrust.com.au Important information

Investment update agenda The market environment Your portfolio in review – MLC’s approach to wealth creation –Sector & Manager Performance – Recent enhancements to your portfolio Outlook & Conclusion

The state of play Too much liquidity Too much leverage Too much complacency Voracious risk appetites A benign macroeconomic environment Have led to…. Risk being way underpriced – too little reward on offer for risks that have not been properly understood Opportunistic funds being launched that do not really meet the needs of long term investors In short, returns have been too high, and volatility has been too low, and this situation is now normalising The problem was (and still is) much larger than just US sub-prime mortgages!

When too much debt just isn’t enough! Source: Thomson Financial Datastream

No, it’s not just a US problem Source: Thomson Financial Datastream, MLC Investment Management

Asset Class Returns to March 2008 *

Some of the major central banks have started the rescue operation… Source: Thomson Financial Datastream. US rate is target rate for Federal Funds. For Europe, short-term repo rate. Canadian rate is Bank of Canada policy rate. Australian rate is the RBA cash rate target. Chinese rate is the 1yr benchmark lending rate. NZ rate is RBNZ cash rate target.

“.. there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns -- the ones we don't know we don't know." …” What we don’t know…(and may not know, that we don’t know) ?How far US house prices will fall ?How much damage will be done to household balance sheets ?The full impact on US financial institutions’ balance sheets (and hence their ability to create credit) ?The full impact on household spending and hence the economy ?The full impact on corporate earnings

Global economic and investment prospects Global economy slowing down (the US is in recession now)..but the Chinese economy is well-placed to weather the storm (good news for Australia) The US Federal Reserve now understands the magnitude of the problem, and is responding....and the economy and financial markets will eventually recover....but we are most unlikely to see a repeat of the kind of investment returns seen in recent years.

Australian economic prospects Australian economic growth to slow significantly (either the economy slows ‘by itself’ or RBA will make it slow!) (Patriotism has paid handsomely over past five years, but this will not last!)

..helping to keep inflation above the RBA’s target range

Outlook for business investment is still very strong

Australian shares have been incredibly strong. These returns were NEVER going to last Source: Thomson Financial Datastream

MLC’s approach to sensible wealth creation 1.The best way to grow wealth is to use exceptional investment managers 2.Deep research is the only reliable way to identify exceptional investment managers. Brand and past performance are unreliable predictors of future performance 3.Diversification leads to more consistent investment outcomes 4.Be patient - A long-term (strategic) approach should be used if your financial goals are long term 5.Efficient implementation reduces the costs of running a portfolio Investing does not need to be complex, opaque, and dangerous, but too many people in recent years have made it that way!

The problem isn’t ‘P’ Source: Thomson Financial Datastream..it’s ‘E’

Your portfolio in review: MLC Horizon 1 Bond Portfolio

Contribution to performance MLC Horizon 1 Bond Portfolio Contribution from each asset class for the periods ending 31 March 2008 Returns are gross of all fees and taxes Contribution from each asset class = strategic asset allocation weighting x total return for the asset class Data source: MLC Investment Management

Maximise after-tax real returns over the long term with lower than average absolute risk Provide consistent added value across market cycles (good and bad) Provide consistently above median (ie competitors) returns over the long-term Likely to outperform peers in adverse environments (capital protection) MLC Horizon Fund expected outcomes for investors

Performance compared to: Key messages: Absolute returns  1. Returns have been very strong over the medium and long term, although the 1 year returns are now negative. 2. Clients need to focus on the longer term returns as they are less volatile. Competitors 1.Since markets turned bearish in the last year, MLC performance has been strong relative to competitors. 2.Returns were helped by relatively high allocations to hedged global shares, private markets and good relative performance in debt assets. 3.MLC almost always outperforms median manager over 5 year periods 4.Risk is lower than median manager. Market indices 1.Performance of the active managers has picked up over the last year as markets have been bearish. There are not many periods where our strategies are underperforming (gross of fees). 2.Fundamental equity managers like MLC’s tend to find more opportunities in volatile markets. Reasons for Horizon’s recent performance

Outlook & Conclusion

Let’s be realistic about the kind of returns that are achievable and sustainable over time

Conclusion Investment solutions have to be appropriate for good and bad times. Its better to outperform in negative return environments than vice versa. We are committed to providing and maintaining investment solutions that are both sensible and help clients achieve their goals.

Questions? Comments. Statements!