MLC Investments 3 The conservative growth portfolio 50% Growth assets 1 shares, private markets, property securities, long-term absolute return strategy 50% Debt securities 1 nominal bonds, inflation linked securities, high yield debt, alternative debt, cash high 7 the growth portfolio the balanced portfolio the conservative growth portfolio the income / capital stable portfolio the bond portfolio 6 5 4 3 2 1 low potential volatility / potential return 1 Based on strategic asset allocation as at 30 e 2008. Asset classes shown in faded colour do not have an allocation in this portfolio.
MLC s investment process Successful investing involves a logical and timeless investment philosophy, or set of beliefs. MLC believes: The best way to grow wealth is to use exceptional investment management with the skills, resources and research to build excellent portfolios. Sensible diversification across investment strategies, assets and investment managers leads to more consistent investment outcomes. A long-term approach should be used to achieve long-term financial goals. Reacting to short-term market movements is usually wealth destroying. Extensive research is the only reliable way to identify exceptional investment managers and build robust strategies. Brand and past performance are unreliable predictors of future performance. Efficient implementation reduces the costs of running a portfolio. Page 01 These beliefs are applied by MLC s team of investment professionals to create the four key elements of MLC s investment process: 1. A long-term approach to investment strategy Reacting to short-term market movements is usually wealth destroying, so MLC is disciplined in applying a long-term view in its decision-making process. Even though longer-term trends are far more predictable, there is still a great deal of uncertainty. We can t be sure what the future holds. We recognise this uncertainty by factoring it into the investment process. This is done by testing how the portfolios perform in a range of potential futures or scenarios. 2. Selecting excellent investment managers An exceptional investment manager will have a clear set of investment beliefs that MLC considers to be sound. For many markets, MLC believes that deep and disciplined research of individual securities can generate superior outcomes. For this reason MLC focuses its research on identifying investment managers that have a bottom-up philosophy. This involves constructing investment portfolios out of securities that are anticipated to perform well. MLC looks for investment managers that have a competitive edge, clearly articulated investment beliefs, an appropriate investment approach and sufficient resources to implement this approach. 3. Combining different investment managers MLC invests across many investment managers, each generating a different pattern of returns over a range of economic and market conditions. By carefully combining several investment managers with different insights, MLC is able to generate more consistent performance than would be possible with a small number of investment managers. This enables MLC to ask its appointed investment managers to construct customised portfolios reflecting their best ideas. This allows them to be the best they can be for MLC s clients. 4. Implementing portfolios efficiently Great investment ideas can only result in great outcomes if they are efficiently implemented. MLC s size enables it to finance a well-resourced and experienced team of specialists backed by processes and structures to ensure that movements of cash and investments are carefully managed to reduce market impact, transactions costs and taxes.
The Series The ready-to-invest portfolio solution from MLC A complete range of portfolios 3 the portfolio you need to achieve your goals high There s no such thing as one size fits all when it comes to investing. MLC has developed the Series to fit the timeframes, return expectations and tolerance for market volatility of a range of very different investors. The Series portfolios, based on MLC s investment process, are the simplest and most reliable way for you and your financial adviser to implement your financial plan. And between now and when you reach your goals, it may be the only portfolio indeed the only investment you ever need! Your financial adviser can help you identify which portfolio, with its particular combination of assets, best fits your circumstances and financial and lifestyle goals. And if your goals and circumstances change, you have the flexibility to switch your investment to another portfolio, or any other investment. 3 is a complete diversified portfolio, designed to provide returns over time from a portfolio that has an equal mix of growth assets and debt securities 2. Your money is managed by a selection of world-class specialist investment managers and strategically diversified in every asset class (shares, property, private markets and debt securities) across a vast range of investments, markets, regions and investment styles. 2 Based on the strategic asset allocation as at 30 e 2008. the accelerated growth portfolio the share portfolio the growth portfolio the balanced portfolio the conservative growth portfolio the income / capital stable portfolio 7 6 5 4 3 2 potential volatility / potential return the bond portfolio 1 low Page 02
Three-dimensional diversification Global private markets $6,000 3 Global shares hedged $7,000 4 Short-maturity debt securities $30,000 Global shares unhedged $12,000 4 Diversification across asset classes Where is your money invested? Various asset classes shares, private markets, property, debt securities and cash perform differently under different economic and market conditions. When you select 3, you choose a portfolio which invests across global and, global property securities, private markets 3 and a long-term absolute return strategy. This portfolio captures the benefits of potentially higher long-term returns from these asset classes. Your allocation to debt securities diversifies the sources of your returns while helping to preserve the value of your investment. $100,000 invested in 3 the conservative growth portfolio (as at 30 e 2008). Diversifying your portfolio helps reduce the volatility of investment returns. Your MLC Horizon 3 portfolio is diversified at many different levels. All-maturity debt securities $18,500 Global alternative debt $1,500 $21,000 Long-term absolute return strategy $1,000 5 Global property securities $3,000 3 The private markets allocation applies only to MLC MasterKey superannuation and pension products. For more information, refer to the back page. 4 The global share exposure has been split into two components. One component is passively hedged back to the Australian dollar via a passive currency overlay managed by Bridgewater, State Street and JP Morgan Asset Management. The second component is unhedged. 5 For information on this strategy, refer to the back page. 6 State Street manages the currency exposure. Page 03
Three-dimensional diversification Diversification across investment managers MLC is not an investment manager. MLC has a dedicated team of in-house professionals constantly researching, monitoring and managing a combination of the world s specialist investment managers. Every investment manager MLC appoints has a clearly defined investment style and a discernible competitive edge. As we are continually reviewing the investment management companies we choose, the choice of our specialist investment managers can be changed at any time without prior notice to you. You can find the latest information about our investment managers at mlc.com.au The line-up of managers shown here is current as at 30 e 2008. The investment managers selected for 3 can be seen in the pie chart. Alliance Global shares Goldman Sachs JBWere Commodities Oaktree Global high yield debt, global bank loans Balanced JF Capital PIMCO Global diversified debt, global real return strategy Bernstein Global shares BlackRock Global nominal bonds JP Morgan Currency management LaSalle Global property securities Bridgewater Global real return strategy, currency management, alpha Lazard Capital International Global shares, emerging market shares Maple-Brown Abbott Challenger Australian property securities Morgan Stanley Global property securities Concord National Specialist Investment Management (NSIM) Australian nominal bonds, Australian inflation linked securities, cash Contango Dimensional, global shares Fortis Global shares Nephila Insurance related investments Northcape Northward Capital Note: Additional investment managers may also be appointed to manage cash investments. Page 04 Resolution Capital Australian and global property securities State Street Currency management UBS Australian nominal bonds, Australian inflation linked securities Vanguard Wallara Walter Scott & Partners Global shares Wellington Management Global shares W.R. Huff Global high yield debt
Three-dimensional diversification Global private markets $6,000 3 Global shares hedged $7,000 4 Diversification within asset classes The 3 portfolio is also diversified across a wide range of countries, currencies, markets and securities. MLC s global approach to investing ensures that your portfolio is not concentrated in a particular region or market, which helps reduce the impact of a regional or market downturn. Efficient implementation Having determined the investment strategy for 3, MLC works hard to ensure that this strategy is efficiently implemented through time. Even if the best investment managers are selected, there is potential for a substantial loss of return if a portfolio is not implemented efficiently. Efficient implementation includes minimising unnecessary transaction costs and tax associated with maintaining underlying asset and manager weightings, as well as changing investment managers. MLC has a team of investment professionals dedicated to this task. Global private markets $6,000 3, 6 Multi-manager approach $6,000 Global shares hedged $7,000 4 Global shares unhedged $12,000 4 Alliance $2,850 Bernstein $3,230 Capital International $3,420 Dimensional $1,900 Fortis $2,280 Walter Scott $3,040 Wellington Management $2,280 Long-term absolute return strategy $1,000 5 Multi-manager, multi-strategy approach $1,000 Global property securities $3,000 6 Resolution Capital $600 Morgan Stanley $1,200 LaSalle $1,200 $21,000 Balanced $2,100 Concord $1,050 Contango $2,100 Dimensional $2,100 JF Capital $2,100 Lazard $3,150 Maple-Brown Abbott $3,150 Northcape $2,100 Northward Capital $1,050 Wallara $2,100 Global alternative debt $1,500 Global bank loans Oaktree $1,500 6 All-maturity debt securities $18,500 Global nominal bonds BlackRock $2,220 Australian nominal bonds NSIM $2,220 Australian nominal bonds UBS $2,220 Australian inflation linked securities NSIM $2,890 Australian inflation linked securities UBS $1,550 Global high yield debt Oaktree $740 Global high yield debt W.R. Huff $740 6 Global real return strategy Bridgewater $2,960 Global real return strategy PIMCO $2,960 Short-maturity debt securities $30,000 Australian nominal bonds UBS $7,050 Australian nominal bonds NSIM $7,050 Global nominal bonds BlackRock $4,200 Australian inflation linked securities NSIM $3,900 Australian inflation linked securities UBS $2,100 Global high yield debt Oaktree $750 Global high yield debt W.R. Huff $750 6 Global diversified debt strategy PIMCO $4,200 Short-maturity debt securities $30,000 All-maturity debt securities $18,500 Global alternative debt $1,500 3 The private markets allocation applies only to MLC MasterKey superannuation and pension products. For more information, refer to the back page. 4 The global share exposure has been split into two components. One component is passively hedged back to the Australian dollar via a passive currency overlay managed by Bridgewater, State Street and JP Morgan Asset Management. The second component is unhedged. 5 For information on this strategy, refer to the back page. 6 State Street manages the currency exposure. $21,000 Global shares unhedged $12,000 4 Long-term absolute return strategy $1,000 5 Global property securities $3,000 Page 05
The performance you need to reach your goals The portfolio has done well in the past, more than keeping pace with inflation... Here you can see the value of $100,000 invested in MLC Horizon 3 since the portfolio commenced in 2001 to 31 May 2008. The actual value is the dark line. The light line shows how much more the investment has grown compared to prices of everyday goods and services (ie inflation). This result was achieved despite a number of major events impacting investment markets over this time. Overall, investment markets have performed strongly for the period shown in this graph. And as you know, the future is subject to a lot of uncertainty. So planning for future returns from your portfolio should be realistic and not just based on the recent past. $160,000 $140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 September 11 $0 2001 2002 2003 2004 2005 2006 Nominal value Real value 2007 Global credit crisis May 2008 however, the future may not be the same... MLC s expectations for the future are calculated by considering the last 100 years of market returns and many other possible market performance scenarios. The graph below shows the range of potential future values of a $100,000 investment in the 3 portfolio, based on MLC s current expectations. 90% of all potential future values are shown in the bars, which exclude the very extreme market events which would be either above or below the bars. The grey line represents the middle value of potential future values. The graph shows that in the long run your investment has the potential to grow substantially. However, investment markets also have the potential to go through long periods of weak performance which could result in your portfolio losing value, even over a period of several years. When selecting your investment, you need to be aware of all possible outcomes, and not just those over recent history. $500,000 $450,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 Range of potential future values Middle of potential future values 7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Years 20% 7 The middle value (or median) is below the centre of the range of potential future values. It is calculated as the middle value of all the values ranked from highest to lowest. and short-term returns can be misleading The graph below shows 3 s range of average returns, between the highest and lowest, over various time periods since the portfolio commenced in 2001. As you can see, the returns fluctuate much more over shorter time periods. Over longer periods of time, you can see that much of the volatility declines (as the different returns offset one another), and over the long-term, there is little volatility left. So the longer the period you measure your returns over, the less they fluctuate. While it s not always easy to ignore what is happening to your investment each day, month or year, you should understand that you will face volatility in the short term and monitor your progress against your long-term goals. 20% 15% 10% 5% 0% -5% -10% Years Range of returns Average annualised compound returns 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Years Note: Returns are based on MLC MasterKey Unit Trust as at 31 May 2008. Page 06
MLC Investments Long-term absolute return strategy An investment strategy which is solely focused on generating long-term growth and will therefore often invest in ways that are quite different from the rest of the market. Private markets Assets, such as private companies, that cannot be traded on listed markets, and are generally therefore illiquid (that is, they take longer to buy and sell than investments available through listed markets) and held for several years. The actual allocation to private markets may be different from that shown, as building a diversified global private markets portfolio can take time and the availability of suitable investments tends to fluctuate. To ensure the portfolio is fully invested, any amounts not invested are allocated to global shares with foreign currency exposures hedged to the Australian dollar. Consistent with other asset classes, MLC uses a multi manager approach to manage global private markets assets. The number of investment managers and/or investments in this asset class will be relatively large and vary over time, as the private markets portfolio evolves and matures. As at 30 e 2008, MLC used 40 investment managers investing funds across the United States, Europe, Asia and Australia. The private markets target allocation for 3 applies only to MLC MasterKey superannuation and pension products. Adverse tax impacts result in a lower after-tax return in ordinary money products (ie MLC MasterKey Unit Trust, MLC MasterKey Investment Service and MLC Wholesale funds), which therefore have a nil allocation to private markets. What are debt securities? Most of us think of the word debt as borrowings from a financial institution, which are repaid with interest. To an investor, however, it can mean something different. You can now imitate financial institutions by taking on the role of lender to a vast range of governments and companies all over the world, because when you invest in debt securities, you are actually lending money, with interest being part of your return. Debt securities include a multitude of different types of assets including: Nominal bonds (sometimes called fixed interest) generally have a maturity of greater than one year from the date they are issued. They are usually issued by governments and corporations. Inflation linked securities have values linked to changes in inflation, and provide a degree of protection against the erosion of purchasing power due to inflation. High yield debt is generally issued by companies that have a credit rating below investment grade. They usually pay higher rates of interest than more creditworthy securities because they have a higher risk of default. Real return strategies aim to deliver a return greater than inflation. The investment manager can invest in a number of different asset classes. Diversified debt strategies are managed by an investment manager with the flexibility to invest in a wide range of different types of debt securities. Alternative debt is an opportunistic investment which was invested in global bank loans at 30 e 2008. Depending on the prevailing market environment for debt securities, MLC may make other opportunistic investments of this kind, where we regard the expected return truly outweighs the expected risks. If no opportunities exist, amounts not invested will be held in the existing debt securities strategy. This applies to MasterKey super and pension products only. Changes to interest rates affect returns from debt securities. Generally, debt securities with a shorter period until they mature (or are repaid) are less affected by changes in interest rates, and therefore have lower volatility in returns, than all-maturity debt securities. MLC has therefore tailored the exposure to short and all-maturity debt securities for each Series portfolio. As the lower Series portfolios (1, 2 and 3) have a greater focus on preserving their investment, they have a higher weighting to short-maturity debt securities. As MLC Horizon Series portfolios 4 and 5 have a greater focus on maximising long term returns above inflation, and can usually tolerate the short-term volatility in returns, they have a higher weighting to all maturity debt securities. Important information This flyer is intended to provide general information only and has been prepared by MLC Limited ABN 90 000 000 402 AFSL 230694 and MLC Investments Limited ABN 30 002 641 661 AFSL 230705 RSE Licence No L0003025, without taking into account any particular person s objectives, financial situation or needs. Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. We recommend investors obtain financial advice specific to their situation before making any financial investment or insurance decisions. MLC Limited and MLC Investments Limited, 105 153 Miller Street, North Sydney NSW 2060, are members of the National Australia Bank (NAB) group of companies. MLC Investments Limited is the issuer of interests in each fund of the MLC Unit Trust and the MLC Investment Trust. MLC Nominees Pty Limited ABN 93 002 814 959 AFSL 230702 RSE Licence No L0002998 is the issuer of The Universal Super Scheme RSE No R1056778 which offers MLC superannuation and pension products. Information about the Series is available in the current Product Disclosure Statement (PDS) or other disclosure document, copies of which are available upon request by phoning the Service Centre on 132 652 or on our website at mlc.com.au. Persons should consider the relevant PDS in deciding whether to acquire, or to continue to hold, this product. Persons wishing to acquire an interest in this product must complete the application form attached to the relevant PDS. Past performance is not indicative of future performance. The value of an investment may rise or fall with changes in the market. None of National Australia Bank Limited ABN 12 004 044 937 AFSL 230699 or any other member company in the NAB group of companies or appointed investment managers, guarantee the capital value or performance of any MLC product, other than MLC Cash Fund for MLC Superannuation and the Fixed Rate Funds and MLC Cash Fund for the MLC Allocated Pension, which are guaranteed by MLC Limited only. 52012 MLC 06/09