MFL MUTUAL FUND ANNUAL REPORT

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1 MFL MUTUAL FUND ANNUAL REPORT FOR THE 10 MONTHS ENDED 30 JUNE 2017

MFL Mutual Fud ('MFL' or 'the scheme') was established i 1969 to provide New Zealaders with a opportuity to pla ad save for retiremet. MFL is a registered superauatio scheme.

The trustee oversees the admiistratio ad maagemet of the scheme ad esures members ivestmets are maaged i accordace with the trust deed.

2 MFL Mutual Fud ('MFL' or 'the scheme') was established i 1969 to provide New Zealaders with a opportuity to pla ad save for retiremet. MFL is a registered superauatio scheme. The scheme was closed to ew members o 16 September The trustee ad maager of the scheme (the trustee) is MFL Mutual Fud Limited. The trustee oversees the admiistratio ad maagemet of the scheme ad esures members ivestmets are maaged i accordace with the trust deed. The trustee is represeted by a Board of Directors, which meets regularly throughout the period ad maitais close cotact with the ivestmet maager. Further iformatio about the directors of the trustee is available at mflmutual.co.z. ANZ New Zealad Ivestmets Limited has bee appoited by the trustee to be the ivestmet ad admiistratio maager (the ivestmet maager) of the scheme. CONTENTS Welcome Ivestmet maager's report Details of scheme... 8 Iformatio o cotributios ad scheme participats... 9 Chages relatig to the scheme Other iformatio for particular types of maaged fuds Chages to persos ivolved i the scheme How to fid further iformatio Cotact details ad complaits Because of a chage i the scheme s fiacial year ed (previously 31 August), this report covers a period of 10 moths from 1 September 2016 to 30 Jue Further iformatio cocerig the scheme is available o the scheme register of Disclose. See page 16 for more details. CONTENTS 1

WELCOME I m pleased to preset this aual report for the MFL Mutual Fud for the period eded 30 Jue 2017.

3 WELCOME I m pleased to preset this aual report for the MFL Mutual Fud for the period eded 30 Jue Together with ivestmet ad admiistratio maager, ANZ Ivestmets, we ve also delivered these ew beefits ad services: MFL returs over the period reflect a spell of market weakess i the last few moths of 2016 whe listed property share prices fell, caused by a rise i bod yields Durig the scheme s history, MFL returs have always bee steady I therefore ecourage you to focus o periods loger tha oe or two years, where the impact of ay short-term weakess has the chace to be absorbed. MFL returs over the period reflect a spell of market weakess i the last few moths of 2016 whe listed property share prices fell, caused by a rise i bod yields. After a log stretch of particularly strog growth, the outcome was some moths of egative returs. However, sice the begiig of 2017, we ve see a gradual improvemet i performace ad the MFL uit price. Durig the scheme s history, MFL returs have bee extremely steady. However, performace is always subject to chages i ivestmet markets. I therefore ecourage you to focus o periods loger tha oe or two years, where the impact of ay short-term weakess has the chace to be absorbed. Over the page, ANZ Ivestmets provides a more detailed accout of fud performace ad a outlook for the year ahead. Durig the period, the followig key evets took place. As plaed, MFL was closed to ew members o 16 September However, it cotiues to operate for you as a existig member, meaig you ca cotiue to cotribute ad icrease your ivestmet ito the future. I November 2016, the scheme officially trasitioed to the ew regulatory regime, the Fiacial Markets Coduct Act 2013, as a restricted scheme. Chages uder the Act iclude more cosistet disclosure ad reportig for members, such as the aual fud update. We updated you o the positio relatig to all ivestmets, icludig cofirmig the scheme has o direct holdigs i compaies ivolved i the maufacture of cotroversial weapos ad tobacco. I Jauary, the maagemet fee for MFL was reduced, resultig i a total reductio of 26% for the fud sice Jauary Access to your MFL accout olie usig ANZ Iteret Bakig (eve if you do t bak with ANZ). A ew website to help keep you up to date with the latest fud iformatio, ad to help you maximise your membership i the scheme. The repurposed Fud Watch ewsletter cotaiig ews ad developmets cocerig your ivestmet. Access to geeral isurace ad life isurace discouts. As always, I ecourage you to take a iterest i your ivestmets ad to cotact your fiacial adviser to discuss your persoal fiacial pla ad progress. ANZ Ivestmets will be happy to put you i touch with a adviser i your area if you eed oe. Thak you for your ogoig support. It s a pleasure havig you i the scheme ad to be helpig cotribute positively to your fiacial future. Mark Cross Chairma MFL Mutual Fud Limited WELCOME 2 3

4 INVESTMENT MANAGER S REPORT MFL MUTUAL FUND MFL Mutual Fud curretly cosists solely of the MFL Property Fud (the fud). The fud is a actively maaged portfolio that ivests predomiatly i Australasia listed property, Australasia equities ad iteratioal listed property. It may ivest i cash ad cash equivalets ad fixed iterest assets. Some uderlyig ivestmets are held directly ad some are held via a uderlyig fud. Listed property icludes trusts or compaies that ow or ivest directly i commercial, office ad idustrial property. The fud s equity ivestmets will predomiatly be shares i listed trusts or compaies with a substatial property compoet. These could iclude, for example, ports, airports, toll roads, utility etworks ad retiremet villages. The chart below shows the target ivestmet mix, which represets the mix of assets that the fud geerally iteds to ivest i. Target ivestmet mix Listed property 65% Cash ad cash equivalets 5% New Zealad fixed iterest 5% Australasia equities 25% FUND PERFORMANCE AT 30 JUNE moths (%) 1 year (%) 5 years (% p.a.) 10 years (% p.a.) MFL Mutual Fud Performace is after fees (excludig admiistratio fees charged directly to member accouts) ad before tax. This is represeted by chages i uit prices plus ay applicable tax credits. Past performace is ot idicative of future performace. Performace ca be egative as well as positive. Note: As a result of the fiacial year ed for MFL chagig from 31 August to 30 Jue (for accoutig purposes), this table shows a correspodig retur for the 10-moth period covered by this aual report, as well as rollig aualised returs for the stadard 12-moth ad loger terms. INVESTMENT MANAGER'S REPORT 4 5

5 6 PERFORMANCE COMMENT While MFL s 10- ad 12-moth performace was disappoitig particularly after last year s 19.90% retur this was the first egative retur MFL had reported sice I last year s report, we cautioed o the likelihood of some short-term vulerability for listed property, should iterest rates rise more quickly tha expected i the US. Ad so it tured out to be. Followig Doald Trump s wi i the US presidetial electios, there was a sharp move higher i global bod yields. This came o the back of prospects of stroger ecoomic growth ad higher iterest rates due to proposed tax cuts ad ifrastructure sped. MFL UNIT PRICE AS AT 30 JUNE $4.50 $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 Ju-2008 Ju-2009 Ju-2010 Ju-2011 Ju-2012 Typically, whe bod yields rise quickly, higher-yieldig sectors of the equity market icludig the listed property sector ca come uder pressure, ad this was reflected i MFL s uit price movig lower late i However, sice the start of 2017, may of the proposed expasioary policies have ot come to pass ad bod yields have retreated somewhat. As a result, the global listed property sector has moved off its lows ad treded back towards the level reached at the ed of the last fiacial year. Ju-2013 Ju-2014 Ju-2015 Ju-2016 Ju-2017 MARKET COMMENT Durig the period, the weakest markets MFL was exposed to were the Australia listed property sector (which fell -5.9%) followed by the Australia property-related sector (with -6.1%). As early 30% of MFL was ivested i these two sectors at the ed of the fiacial year, their returs egatively impacted performace. The weakest stocks i the Australia property sector icluded retail mall giats Scetre Group ad Westfield, which fell -13.9% ad -22.0% respectively o weaker retail sales growth ad the expected etry of Amazo to the Australia market. Clearly olie retail is creatig big headwids for all bricks ad mortar retail, as mall owers are havig to ivest more capital to attract the best retailers ad create a more vibrat destiatio for shoppers. I the property-related sector, the weakest performer was Aveo Group, which fell o poor press relatig to the treatmet of some of its retiremet village residets. However, hospital ad aged-care operators were geerally weaker over the year as well. O a more positive ote, New Zealad listed property eded the year up 1.8%, showig its resiliece i a world where most listed property markets were weak. The bestperformig property stocks durig the period were Property for Idustry, which retured 9.5%, followed by Vital Healthcare Property Trust, with 5.2%. OUTLOOK Our view is that ecoomic growth aroud the world is pickig up, but remais relatively fragile for a variety of reasos. Apart from the accumulatio of high levels of debt at both the household ad govermet level, sigificat techology ad demographic treds are reducig household icome growth. This meas the cyclical recovery i global growth is likely to be challegig. For this reaso, we believe ecoomic growth ad iflatio will pick up slowly over the ext few years ad that the world s major cetral baks will gradually move iterest rates back to more ormal levels. While this will evetually lead to higher iterest costs for listed property vehicles (as they roll off lower fixed terms), steadily icreasig ecoomic growth ad higher iflatio mea that property compaies will be able to raise rets, thereby offsettig higher iterest costs. So, this eviromet ca still be relatively buoyat for listed property compaies. However, we cautio oce agai that while we expect a slow icrease i iterest rates, a sharp icrease i loger-term iflatio expectatios (leadig to higher bod yields) would impact the sector as it did i late Therefore, there is a likelihood of greater volatility, albeit off a low base. Meawhile, the fudametals for the listed property sector remai soud. By that we mea the balace betwee the supply ad demad for ew space is relatively stable i most markets, ad vacacy rates remai at or ear record lows (particularly i New Zealad). That also meas retal growth is likely to remai relatively buoyat as teats have few alterative optios. I additio, the demad for high-quality, well-located properties cotiues to be remarkably strog ad this should support the uderlyig valuatios of properties. More importatly, we thik that the key beefits of property are the cotracted icome stream deliverig a relatively high icome yield ad iflatio protectio. This will cotiue to provide resiliet ivestor returs over the log term. INVESTMENT MANAGER'S REPORT 7

6 DETAILS OF SCHEME NAME OF THE SCHEME MFL Mutual Fud TYPE OF SCHEME Restricted superauatio scheme. The scheme is closed to ew ivestors. TRUSTEE AND MANAGER MFL Mutual Fud Limited (trustee) INFORMATION ON CONTRIBUTIONS AND SCHEME PARTICIPANTS The iformatio i this documet relates to the 10 moths from 1 September 2016 to 30 Jue 2017 (the period). MEMBERSHIP The table below provides a summary of the umerical chages i the membership of the scheme durig the period. INVESTMENT AND ADMINSTRATION MANAGER ANZ New Zealad Ivestmets Limited (ivestmet maager) PRODUCT DISCLOSURE STATEMENT As the scheme is a restricted scheme, there is o product disclosure statemet. FUND UPDATE The scheme s latest fud update for the year eded 30 Jue 2017 was made publicly available o 29 September This is available o the offer register at compaiesoffice.govt.z/disclose. FINANCIAL STATEMENTS AND AUDITOR S REPORT The scheme s latest fiacial statemets for the 10 moths eded 30 Jue 2017, ad the auditor s report o those fiacial statemets, were dated 25 October 2017 ad were lodged with the Registrar o 27 October See page 16 for more details. MEMBERSHIP MOVEMENTS Number of members Total amout ($000) MEMBERS AT 1 SEPTEMBER 2016 Cotributig members 3,617 No-cotributig members 16,679 Total members at 1 September ,296 Total members accumulatio at 1 September ,746 PLUS NEW MEMBERS Trasfers from other schemes Other ew members 65 Total ew members durig the period 65 LESS EXITED MEMBERS Retiremet 527 Death 93 Trasfers to other schemes Full withdrawals 27 Total members exited durig the period 647 MEMBERS AT 30 JUNE 2017 Cotributig members 2,872 No-cotributig members 16,842 Total members at 30 Jue ,714 Total members accumulatio at 30 Jue ,030 INFORMATION ON CONTRIBUTIONS AND SCHEME PARTICIPANTS 8 9

7 CHANGES RELATING TO THE SCHEME CONTRIBUTIONS The table below provides a summary of the cotributios received durig the period by way of: CONTRIBUTION TYPE Number of members Total amout ($000) Member cotributios* 3,416 10,187 Employer cotributios Trasfers from other schemes Total cotributios 10,187 * All member cotributios are volutary This sectio describes ay material chages to the scheme s ature, ivestmet objectives ad strategy, ad maagemet durig the period. CLOSING OF THE SCHEME TO NEW MEMBERS After the Fiacial Markets Coduct Act 2013 (FMC Act) was passed, the trustee decided it was i the best iterests of members to restrict membership to existig members ad to cease offerig the scheme to ew members. This would eable the trustee to focus solely o meetig the eeds of existig members ad to reduce costs, while still overseeig the scheme o the members behalf. It also meat the scheme could avoid the sigificat costs of trasitioig ito the ew FMC Act regime as a ope scheme. TRANSITION TO THE FMC ACT O 12 November 2016, the scheme trasitioed to the FMC Act regime ad became a restricted scheme. Before trasitio, the scheme was govered by the Superauatio Schemes Act 1989 ad offered to the public uder the Securities Act CHANGES TO THE TRUST DEED The scheme s trust deed was ameded o 8 November 2016 i coectio with the trasitio to the FMC Act, to reflect that the scheme is closed to ew members ad to make some other amedmets for the more efficiet operatio of the scheme. CHANGES TO THE TERMS OF OFFER OF INTERESTS IN THE SCHEME As the scheme is closed to ew members, it was registered uder the FMC Act with restricted superauatio scheme status. Therefore, there is o requiremet for offer documets to be prepared. CHANGES TO THE SCHEME S SIPO The SIPO was updated as part of the trasitio to the FMC Act oted above. CHANGES TO THE NATURE OR SCALE OF THE RELATED PARTY TRANSACTIONS There were o material chages to the ature or scale of the related party trasactios etered ito for the scheme durig the period. All related party trasactios were coducted o arm s-legth terms. The trasitio icluded activities such as: obtaiig a maager s licece updatig the scheme s trust deed ad statemet of ivestmet policy ad objectives (SIPO). CHANGES RELATING TO THE SCHEME 10 11

8 OTHER INFORMATION FOR PARTICULAR TYPES OF MANAGED FUNDS WITHDRAWALS The table below sets out the withdrawals made from the scheme durig the period. UNIT PRICES The table below sets out the uit prices for the scheme at the start ad ed of the period. WITHDRAWAL REASON Number of members Total amout ($000) Partial withdrawals* Full withdrawals* Death 93 4,903 Retiremets ,987 Trasfers to other registered schemes Total withdrawals 1,072 30,617 FUND At 31 August 2016 At 30 Jue 2017 MFL Mutual Fud *Icludes hardship, permaet emigratio, serious illess ad other volutary member withdrawals OTHER INFORMATION FOR PARTICULAR TYPES OF MANAGED FUNDS 12 13

CHANGES TO PERSONS INVOLVED IN THE SCHEME TRUSTEE S STATEMENT MFL Mutual Fud Limited, as trustee of the scheme, cofirms that: all the cotributios required to be made to the scheme i accordace with

9 CHANGES TO PERSONS INVOLVED IN THE SCHEME TRUSTEE S STATEMENT MFL Mutual Fud Limited, as trustee of the scheme, cofirms that: all the cotributios required to be made to the scheme i accordace with the terms of the trust deed have bee made all the beefits required to be paid from the scheme i accordace with the terms of the trust deed have bee paid, ad the market value of the scheme property at 30 Jue 2017 equalled or exceeded the total value of beefits that would have bee payable had all members of the scheme ceased to be members at that date ad had provisio bee made for the cotiued paymet of all beefits beig paid to members ad other beeficiaries as at 30 Jue TRUSTEE Before 12 November 2016, MFL Mutual Fud Limited was the trustee of the scheme. O 12 November 2016, MFL Mutual Fud Limited became the trustee ad maager of the scheme. Directors of the trustee The directors of the trustee as at 30 Jue 2017 were: Mark Cross, Chairma The Rt Ho Sir William Birch Paul Fyfe Dr Edward Schuck Gleis Webber There were o chages to the directors of the trustee durig the period. AUDITOR KPMG was the auditor to the scheme throughout the period. CHANGES TO PERSONS INVOLVED IN THE SCHEME 14 15

10 HOW TO FIND FURTHER INFORMATION CONTACT DETAILS AND COMPLAINTS ON DISCLOSE Disclose is a website that cotais two registers a offer register ad a scheme register. To fid the fud updates, go to: compaiesoffice.govt.z/disclose Click SEARCH OFFERS ad search for MFL Mutual Fud TRUSTEE MFL Mutual Fud Limited Registered office: c/- Due Cosultig Group Limited Level 2, Uit F William Pickerig Drive Aucklad 0632 If ANZ Ivestmets is uable to resolve your complait, you may choose to cotact the trustee usig the cotact details o the left. If you re still ot satisfied, you ca get free idepedet assistace from the followig dispute resolutio scheme. To fid the SIPO, trust deed ad fiacial statemets, go to: compaiesoffice.govt.z/disclose Click SEARCH SCHEMES ad search for MFL Mutual Fud ON OUR WEBSITE Other valuable iformatio ad resources to help you maage your ivestmet, icludig trasactio forms, fud performace, uit prices ad aual fud updates are available o the MFL website. mflmutual.co.z You ca also obtai a copy of ay of the above iformatio o request ad free of charge by cotactig ANZ Ivestmets (cotact details are o the ext page). Registered office of MFL: Albert Street, Aucklad 1010 INVESTMENT MANAGER ANZ New Zealad Ivestmets Limited ANZ Cetre, Albert Street, Aucklad Freepost 324, PO Box 7149, Wellesley Street Aucklad 1141 Call or service@azivestmets.co.z IF YOU HAVE A COMPLAINT For ay problems or complaits, cotact your fiacial adviser first. If you do t have a fiacial adviser, or your fiacial adviser has bee uable to help you, please let ANZ Ivestmets kow usig the cotact details above. As the admiistratio maager of the scheme, they are committed to resolvig your complait as quickly as possible. DISPUTE RESOLUTION SCHEME Isurace ad Fiacial Services Ombudsma Scheme 81 Molesworth Street, Welligto PO Box Welligto 6143 You wo t be charged a fee by ANZ Ivestmets, the trustee or the dispute resolutio scheme for ivestigatig or resolvig a complait. Ivestmets i the scheme are ot deposits i ANZ Bak New Zealad Limited, Australia ad New Zealad Bakig Group Limited or their subsidiaries (together ANZ Group), or are they liabilities of ANZ Group. ANZ Group does ot stad behid or guaratee ANZ New Zealad Ivestmets Limited. Ivestmets are subject to ivestmet risk, icludig possible delays i repaymet, ad loss of icome ad pricipal ivested. ANZ Group will ot be liable to you for the capital value or performace of your ivestmet. Your ivestmet i the scheme is ot guarateed by ANZ Group, MFL Mutual Fud Limited, ay of their directors or ay other perso. CONTACT DETAILS AND COMPLAINTS 16 17

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