Investing in volatile times

1. Investing in volatile times Investing Fundamentals and How MLC’s portfolios are designed to weather market volatility September 2008

2. Disclaimer This document was prepared by MLC Investments Limited (ABN 30 002 641 661), and MLC Limited (ABN 90 000 000 402), members of the National group of companies, as an information service without assuming a duty of care. Accordingly, reliance should not be placed by anyone on this document as the basis for making any investment, financial or other decision. While the information included is believed to be accurate, no member of the MLC Investments Limited or any member company of the National Group of companies accepts responsibility for any inaccuracy or for investment decisions or any other actions taken by any person on the basis of the material included. An investment with MLC does not represent a deposit with or a liability of National Australia Bank Limited, MLC Investments Limited, MLC Limited, or other member company of the National Group of companies and is subject to investment risk including possible delays in repayment and loss of income and capital invested. None of National Australia Bank Limited (ABN 12 004 044 937), MLC Investments Limited, MLC Limited, other member companies in the National Group of companies, the underlying fund managers of the investments, any trustees or their respective officers guarantee the repayment of capital invested, the payment of income, the performance of the specific investments selected by investors or the performance of any MLC products except where specified on the current disclosure document.

3. Investment Fundamentals ‘Why invest in risky assets?’

4. Why invest in risky assets? ‘To generate desired returns, investors must be willing to accept higher volatility.’ Expected real return and risk assumptions5 year expectations Source: MLC Investment Management

5. Why invest in risky assets? ‘Riskier assets have a wider spread of returns, but higher potential returns.’ Source data based upon the following: Cash: UBSWA 90 Day Bank Bill Index (from April 1988 only), Global Bonds: Lehman Global Aggregate Hedged (from January 1986 only), Aust Bonds: UBS Composite Bond All Mats (from Nov 1989 only), Propertys: S&P/ASX 300 Property Trusts Accumulation Index, Aust Shares: S&P/ASX 300 Accumulation Index (from January 1986 only), Global Shares: MSCI World (ex Australia) in $A Gross Return

6. Why invest in risky assets? History shows risky assets are more likely to generate better long-term returns…

7. Equities are investments in real companies

8. Investment Fundamentals ‘How to invest sensibly’

9. Invest sensibly … and make sure your portfolio is diversified… Source data: Australian Shares: All Ordinaries Accumulation Index. Global Shares: MSCI World Gross Accumulation Index ($A). Property: ASX 200 Property Trust Accumulation Index. Australian Bonds: UBS Composite Bond Index. The Diversified Portfolio is an equally weighted portfolio of all asset classes.

10. Invest sensibly… Focus on the long-term Short-term noise, long-term clarityJanuary 1985 - September 2008 Short-term noise here is graphically represented by monthly performance returns The clarity is the accumulated long-term effect of this short-term volatility Source: S&P/ASX 200 Accumulation Index, S&P/ASX 300 Accumulation Index from end Nov 02

11. Invest sensibly… Understand market volatility What goes up, must come down, occasionallyJan 1985 - September 2008 Source: S&P/ASX 300 Accumulation Index

12. How to invest sensibly… It’s time in, not timing, the market that matters Missing the 10 Best Days can cost you big time Value of $10,000 invested in 1980 Data: All Ordinaries Price Index (to Dec 2003), S&P/ASX 300 Price Index (to September 2008)

13. How to invest sensibly… Chasing returns can be a costly strategy

14. How MLC’s portfolios are built to weather the storm?

15. MLC Horizon Series portfolios are designed to weather market volatility Broad Diversification at many levels Stocks Countries & Currencies Managers Long-Term Asset Allocation Approach Disciplined approach for many states of the world Regular rebalancing Specialist Investment Managers Several excellent managers Different, but complementary, manager approaches

16. Weathering Market Volatility…Diversification at many levels Diversified across asset classes & sub-asset classes The current asset & asset classes used across the Horizon Series portfolios

17. Weathering Market Volatility…Diversification at many levels Diversified across investment managersThe current manager line-up for Australian shares exposure within the Horizon Series portfolios

18. Weathering Market Volatility…Diversification at many levels Diversified across many different industriesThe current Australian share industry exposure within the Horizon Series portfolios

19. Weathering Market Volatility…Diversification at many levels Diversified across companiesThe current Australian shares company exposure within the Horizon Series portfolios

20. Weathering Market Volatility…Diversification at many levels Diversify, Diversify, DiversifyThe current manager line-up for the MLC Horizon 4 – Balanced portfolio • Allocation to many asset classes • 30 public market managers • 35 private equity managers • 40+ countries • 60+ industries • 1,000+ shares • 1,000+ bonds

21. Weathering Market Volatility… Long-Term Asset Allocation Approach Steady State Deflation – constructive / productivity driven boom (1870s) Stagflation (1970s), includes transition to high inflation Rising inflation / inflation shock (reverse of disinflation) Debt driven growth Disinflation Generalised global growth boom – investor optimism Investor pessimism – rise in risk premiums Prolonged global growth & productivity boom BRICs Res Boom Economy & market bust Australia only bust (world econ not weak) Australian economic crisis (reversal of scenario 8) World Weak Profit share mean reversion Credit / monetary expansion Credit / monetary contraction Steady / trend growth with mean reversion Slowdown Taking into account many different possibilities Some of the current scenarios considered in determining the Horizon Series asset allocation Recession Recovery Aus deflation – destructive (Japan 1990s) Global depression or stagnation (1930s) Hyperinflation (Germany post war) Financial collapse (eg Asian financial collapse, LTCM) Oil price or other commodity price shock Global pandemic Global catastrophe Global catastrophe adverse economic environment Global conflict / war Protectionism Exogenous risk drives investor uncertainty Structural collapse Market bust – Rise in Correlations Deregulation Paradigm shift – permanently lower vals for equities (higher rp) Paradigm shift – permanently higher vals for equities (lower rp) Speculative bubble

22. Weathering Market Volatility… Many Excellent Investment Managers

23. SUMMARY Recent market volatility has been merely a realisation of low volatility over last few years Market volatility is to be expected in any long-term investment approach Best approach is generally to diversify and stick to your long-term investment strategy MLC Horizon Series portfolios are well diversified and designed to help you reach your long-term goals