1

Investment Updatefor your MLC MasterKey Horizon 5

Growth Portfolio

Year to 31 December 2007

2

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 132 652 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

3

Investment update agenda

• The market environment

• Your portfolio in review

• Sector & Manager Performance

• Recent enhancements to your portfolio

• Outlook & Conclusion

4

The market environment

5

Indices: Global bonds: Lehman Brothers Global Aggregate Index ($A hedged), Listed property: S&P/ASX 200 Property Accumulation Index, Inflation linked bonds: UBS Warburg Bank Inflation Linked (All Mat) Index, Australian bonds: UBS Warburg Composite Bond (All Mat) Index, Australian shares: S&P/ASX 300 Accumulation Index, Global shares unhedged: MSCI World Net ($A), Global shares hedged: MSCI World Net.

Value of $100 in major markets – 1 year return

85

90

95

100

105

110

115

120

125

Dec

200

6

Feb

200

7

Ap

r 20

07

Jun

200

7

Au

g 2

007

Oct

200

7

Dec

200

7

Date

Val

ue

($)

Australian Shares

Cash

Aus Inflation-Linked

Aus Bonds

Global Bonds

Global shares(hedged)

Global shares(unhedged)

Aus Property Sec

6

Value of $100 in Regional markets – 1 year return

Indices: MSCI – Emerging Markets index, MSCI Europe Ex UK , MSCI Japan, MSCI United Kingdom and MSCI USA (All unhedged unless otherwise stated)

80

90

100

110

120

130

140

Dec

200

6

Feb

200

7

Ap

r 20

07

Jun

200

7

Au

g 2

007

Oct

200

7

Dec

200

7

Date

Val

ue

($)

MSCI - US

MSCI - UK

MSCI - Japan

MSCI - Europe(ex-UK)

MSCI -EmergingMarkets

7

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

• In short, returns have been too high, and volatility has been too low, and this situation is now normalising

Q. Just how bad will the effects on the real economy turn out to be?

8

The view in the rear-view mirror looks fine…US

0123456

Q1 1999 Q1 2001 Q1 2003 Q1 2005 Q1 2007

Annual growth in real GDP %

Eurozone

0

1

2

3

4

5

Q1 1999 Q1 2001 Q1 2003 Q1 2005 Q1 2007

Annual growth in real GDP %

Japan

-4

-2

0

2

4

6

Q1 1999 Q1 2001 Q1 2003 Q1 2005 Q1 2007

Annual growth in real GDP %

UK

0

1

2

3

4

5

Q1 1999 Q1 2001 Q1 2003 Q1 2005 Q1 2007

Annual growth in real GDP %

9

...but the windscreen view isn’t pretty (leading indicators are heading into recession territory)

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

Jan-91 Jan-94 Jan-97 Jan-00 Jan-03 Jan-06

G7 Industrial output OECD Leading indicators for G7

6 month % change

10

Credit crisis has hit confidenceG3 consumer sentiment has fallen

sharply...

-4

-3

-2

-1

0

1

2

3

Q4 1994 Q4 1997 Q4 2000 Q4 2003 Q4 2006

US Eurozone Japan

Z-score. (Std devs away from 3yr average)

..as have the major business sentiment indices

-4

-3

-2

-1

0

1

2

3

Q4 1992 Q4 1995 Q4 1998 Q4 2001 Q4 2004 Q4 2007

US ISM Manufacturing index

Eurzone: economic sentiment index

Japan: Tankan Survey

Standard deviations away from 5yr average

11

Sharemarkets are well off their 2007 highs, but emerging markets have fared surprisingly well

60

70

80

90

100

110

120

130

Jun-07 Aug-07 Oct-07 Dec-07

Australia

US

Japan

UK

Euro-area

EMEs

Selected share price indices (end June '07 equals 100)

12

US housing: the state of play

Home sales appeared to have stabilised but not any more

2500

3500

4500

5500

6500

7500

8500

Jan-93 Jan-96 Jan-99 Jan-02 Jan-05 Jan-08

Total home sales (new + existing)

'000 annualised

Housing activity still falling as permits and starts resume their decline

500

1000

1500

2000

2500

Jan-93 Jan-96 Jan-99 Jan-02 Jan-05 Jan-08

Housing starts (lhs)

Residential building permits

Huge overhang of unsold homes

2

4

6

8

10

Jan-94 Jan-97 Jan-00 Jan-03 Jan-06

Unsold single-family homes to total sales ratio

Delinquency rates - residential mortgages

1.0

1.5

2.0

2.5

3.0

3.5

Q2 1991 Q2 1994 Q2 1997 Q2 2000 Q2 2003 Q2 2006

% of loans outstanding

13

The central banks have started the rescue operation…

0

1

2

34

5

6

7

8

May-04 Nov-04 May-05 Nov-05 May-06 Nov-06 May-07 Nov-07

US Euro-area Japan Canada Australia UK China India

Official interest rates %

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 the1yr benchmark lending rate. Indian rate is the RBI’s repo rate.

14

..but how much more debt can be rammed down the throats of consumers in the English speaking world?

Australian household debt

020406080

100120140160180

Q1 1980 Q1 1985 Q1 1990 Q1 1995 Q1 2000 Q1 2005

as % of GDP

as % of disposable income

%

US household debt

020406080

100120140160180

Q1 1980 Q1 1985 Q1 1990 Q1 1995 Q1 2000 Q1 2005

as % of GDP

as % of disposable income

%

UK household debt

020406080

100120140160180

Q1 1980 Q1 1985 Q1 1990 Q1 1995 Q1 2000 Q1 2005

as % of GDP

as % of disposable income

%

15

House prices in the English speaking (!?) economies

US, UK, and Australian real house prices

50

100

150

200

250

300

Q1 1988 Q1 1991 Q1 1994 Q1 1997 Q1 2000 Q1 2003 Q1 2006

UK US Australia

March quarter 1988 equals 100

Source: Datastream, RBA, MLC Investment Management

16

Global economic prospects

• US housing downturn is still a significant drag on US growth – recession risk is high

• European and Japanese indicators have turned down

• Can Asia/Emerging markets ‘de-couple’ from G7 business cycle?

• Central banks have started the rescue mission – interest rates have been cut in US, UK, and Canada

• Further rate cuts are likely, and the European Central Bank is likely to join in at some point, BUT… Interest rates weren’t all that high to begin with

Household debt (at least in the English speaking economies) is already at historic highs!

• Bottom line: G4 economic growth rates are likely to be below trend for an extended period

17

Australia’s links with the US business cycle are not what they used to be

-3-2-1012345678

Q4 1985 Q4 1988 Q4 1991 Q4 1994 Q4 1997 Q4 2000 Q4 2003 Q4 2006

Australia - non-farm GDP US GDP

Annual growth (%)

18

Australian economic prospects• Australian GDP growth has accelerated over the past year

Surge in business investment

Gains in disposable income have boosted both spending and saving (savings rate is back into positive territory!)

Employment growth has been strong, with further gains likely over coming months

• Another RBA rate hike is likely – above trend growth, at a time when RBA’s preferred inflation measures are above target

• BUT.. Monetary conditions have already tightened (real cash rates higher than

decade averages, global borrowing costs have risen)

Business and consumer confidence have been hit by higher interest rates, global credit crisis

Impact of global downturn on Australia?

19

The Australian economy in snapshotAustralia's GDP growth has been

pedestrian, but not any more..

-2

0

2

4

6

8

Q1 1992 Q1 1995 Q1 1998 Q1 2001 Q1 2004 Q1 2007

q/q% y/y%

GDP growth %

..because domestic demand growth, already strong, has accelerated..

-2

0

2

4

6

8

Q1 1992 Q1 1995 Q1 1998 Q1 2001 Q1 2004 Q1 2007

q/q%

y/y%

Domestic final demand %

..underpinned by a resurgence in consumer spending...

-2

0

2

4

6

8

10

Q1 1995 Q1 1998 Q1 2001 Q1 2004 Q1 2007

Household consumptionRetail trade

Annual growth in volumes %

..and business investment spending

-10-505

1015202530

Q3 1998 Q3 2001 Q3 2004 Q3 2007

Quarterly change %

Annual change %

Business investment (ex 2nd hand asset purchs) volume terms

20

RBA tends to be in tightening mode when trend unemployment rate is falling

0

5

10

15

20

25

Jan-83 Jan-87 Jan-91 Jan-95 Jan-99 Jan-03 Jan-07

0

2

4

6

8

10

12% %

Trend unemployment rate (rhs)

Cash rate (lhs)

21

Has the RBA already done enough?

Real cash rates are above their 'low inflation era' average

0

1

2

3

4

5

6

Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08

Cash rate less average of RBA's trimmed mean and weighted median CPI inflation rates

Sources: RBA, MLC Investment Management

22

Australian shares have been incredibly strong. These returns were NEVER going to last

-15

-10

-5

0

5

10

15

20

25

30

Q1 1977 Q1 1982 Q1 1987 Q1 1992 Q1 1997 Q1 2002 Q1 2007

Rolling 5yr real returns - Datastream Australian Market Index

23

Let’s keep the recent volatility in perspective

2500

3000

3500

4000

4500

5000

5500

6000

6500

7000

Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08

ASX300 Index

Source: Thomson Financial Datastream

24

Australian LPTs have collapsed after years of strong performance…

-20

-10

0

10

20

30

40

50

May-92 May-94 May-96 May-98 May-00 May-02 May-04 May-06

ASX300 LPT index - rolling 1 yr returns (%)

25

LPTs have underperformed the Australian sharemarket for years

0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

1.10

1.15

Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08

ASX300 LPTs vs ASX300 - ratio of total return indices

Listed property outperforming

26

The problem isn’t “P”…

0

5

10

15

20

25

30

35

1985 1988 1991 1994 1997 2000 2003 2006

US

Australia

UK

PE (Trailing EPS)

27

…it’s “E”!! (i.e. PE ratios look cheap, IF you believe that cyclically high earnings are sustainable)

5

7

9

11

13

15

17

19

21

23

1985 1988 1991 1994 1997 2000 2003 2006

US

Australia

UK

Return on equity (%)

28

The share of the pie (GDP) going to profits is about as high as it ever gets

Australian corporate profits as a share of GDP are just off record highs..

10

12

14

16

18

20

22

24

26

Q3 1959 Q3 1969 Q3 1979 Q3 1989 Q3 1999

Gross operating surplus ex dwellings, general govt as % of GDP

..and US corporate profits are just below their post-1945 peak

4

5

6

7

8

9

10

11

12

13

Q1 1959 Q1 1969 Q1 1979 Q1 1989 Q1 1999

Private sector pre-tax profits as % of GDP

29

Australia: profit share seems to have peaked

Non-financial corporations' profits as a share of GDP

10

12

14

16

18

20

22

Q3 1959 Q3 1969 Q3 1979 Q3 1989 Q3 1999

%

Financial corporations' profits as a share of GDP

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Q3 1959 Q3 1969 Q3 1979 Q3 1989 Q3 1999

%

30

Your portfolio in review:

MasterKey Horizon 5Growth Portfolio

31

Horizon 5 Growth PortfolioAsset allocation based on MasterKey Superannuation

32

Contribution to performanceMLC MasterKey Horizon 5 Growth PortfolioContribution from each asset class for the periods ending 31December 2007Returns 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

Property Securities

Diversified bonds

Global Shares - Unhedged

Aust Shares

LTAR2

Private Markets

Global Shares - $A Hedged

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

1 Year

3 Years

Contribution to your return from each asset class for the period ending

31 December 20071

1.Contibution of each asset class is based on the strategic asset allocation multiplied by the return for the asset class (before fees and taxes). The actual contribution may differ slightly due to cash f low and rebalancing effects. 2. LTAR - Long Term Absolute Return startegy has existed only since December 2005, and is therefore not available for 3 years.

33Source: Mercers Investment Consulting (MPA Retail Software Kit)

Portfolio ReturnsMLC MasterKey Horizon 5 Growth Portfolio – Personal SuperAbsolute Rolling Period Return ( May 1997 – December 2007)Returns are gross of all fees and taxes

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

May1997

May1998

May1999

May2000

May2001

May2002

May2003

May2004

May2005

May2006

May2007

Twelve Month Return (%pa) Three Year Return (%pa) Five Year Return (%pa)

34

Share manager performance31 December 2006 – 31 December 2007

Returns are gross of fees and taxes

Australian shares

Maple-Brown Abbott 10.00%Dimensional 10.55%Lazard Asset Management 5.39%Contango 27.73%Concord Capital 20.53%Wallara Asset Management 17.41%JF Capital Partners 22.63%Balanced Equity Management 11.09%Northcape 21.78%

Total 14.83%

Global shares

Capital International 3.68%Alliance Growth Equites 5.18%Dimensional - Global -5.60%Dimensional - Emerging Mkts 27.45%ABN AMRO -4.26%Bernstein Value Equities -6.98%Walter Scott & Partners 0.92%Wellington 4.02%

Total hedged 8.49% Total unhedged 0.38%

35Data: MLC Investments Limited

Top Ten Australian Stocks – MLC MasterKey Horizon 4 - Balanced Portfolio

Company Industry Sector Portfolio (%)

BHP Billiton Materials 7.02

National Australia Bank Financials Excluding Property Trusts 6.68

ANZ Bank Financials Excluding Property Trusts 5.70

Westpac Financials Excluding Property Trusts 4.18

Rio Tinto Materials 4.11

Woolworths Consumer Staples 2.80

Brambles Industrial 2.67

QBE Insurance Financials Excluding Property Trusts 1.86

Fairfax Media Consumer Discretionary 1.80

Suncorp Metway Financials Excluding Property Trusts 1.75

Top 10 Australian Shares as at 31 December 2007

36

Top 10 Global Shares as at 31 December 2007

Top Ten Global Stocks – MLC MasterKey Horizon 4 - Balanced Portfolio

Company Industry Sector Portfolio (%)

JP Morgan Financials 1.19

Credit Suisse Financials 1.18

Nestle SA Consumer Staples 1.12

Potash Corp of Saskatche Materials 1.7

Rio Tinto Materials 1.07

Cisco Systems Inc Information Technology 0.95

Microsoft Information Technology 0.93

Schlumberger Energy 0.92

Barrick Gold Materials 0.85

Intel Information Technology 0.84

Data: MLC Investments Limited

37

Investment ProcessThe Process is monitored by a cycle of ongoing reviews

Daily: Monitor compliance and manage cash flow / rebalancing

Monthly: Review investment manager portfolio strategies and performance

Six monthly: Pre-briefs, formal investment manager reviews, debriefs and marketing updates

Annually+: Asset class reviews (Australian share, global share and property securities strategies refined)

Ad hoc: Overseas research trips

38

Outlook & Conclusion

39

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

Periods to end Sept 2007 5yr 10yrMLC's Long-term

expectation?#

Cash 5.7 5.5 5.1Australian bonds 4.9 5.7 5.4LPTs 19.3 15.0 6.4Global equities (unhedged) 8.4 5.1 8.4Australian shares 22.3 13.7 8.4

Source: Thomson Financial Datastream, MLC Investment Management# MLC base case equilibrium assumptions for asset class returns over the next 10 years,

assuming that markets are fairly valued at the commencement of the period, that the

global and domestic economies grow at around a trend-like pace, and inflation outcomes

are in line with central bank targets.

40

Investment thoughts/implications• Lower investment returns

• A focus on costs, and the value-added from skilled investment managers become even more important

• Value managers have been struggling to find opportunities, and this could persist for some time (think US 1997)

• Defensive asset allocation bets should eventually pay-off, but just when exactly?

• Resources: is it really different this time?

• Just how much better is the China/India story going to get for the Australian economy and resource equities?

41

Questions?Comments.Statements!