Challenger Funds Management Limited

Challenger Funds Management Limited is a wholly owned subsidiary of the Challenger Financial Services Group. Challenger has over $2 billion of listed property securities funds under management as at 30 June 2005.

Mandate:

Active Property Securities

Corporate Overview:

Corporate Overview: Challenger Funds Management Limited is a wholly owned subsidiary of the Challenger Financial Services Group.

Challenger applies an investment approach that combines top-down macroeconomic and property sector research and bottom-up security specific analysis with the objective of achieving excess returns relative to the S&P/ASX300 Property Trusts Accumulation Index. For MLC, the portfolio can include investments in property related securities which are not part of the Property Trusts Index.

Listed property securities portfolios are managed by a team of three specialists who have extensive investment and direct property market experience. They focus exclusively on the research of top-down macroeconomic and property sector fundamentals, bottom-up trust specific analysis and portfolio construction. In addition to their own knowledge and the detailed research they conduct, team members have access to the Challenger Financial Groups Fixed Interest and Equities team..

Investment Process Description:

Challenger’s property securities team undertakes comprehensive research of both top-down and trust specific fundamentals. This reflects their philosophical belief that exploitable mispricing opportunities arise in the listed property market at the macroeconomic, industry and individual trust levels.

The top-down analysis of the external business cycle and property sector fundamentals is the primary determinant of the property sector preferences of the portfolio. The Challenger team has developed a property business cycle index to guide property sub-sector weightings in the portfolio and the direction of the fundamental sector and individual trust research they conduct. The index models a range of economic factors (e.g. interest rates, economic growth, retail sales, business and consumer surveys) to produce a ranking of the five property sub-sectors: office, retail, industrial, hotel and diversified. Each property sub-sector is analysed in depth, including an examination of the demand and supply forces in the respective markets and their likely impact on future occupancy, rents and capital gains. The investment team also reviews relevant external research on the property market and sector trends, including the direct property intelligence from the direct property team, to identify consensus views on markets and potential mispricing opportunities.

Challenger’s research of individual trusts covers a range of qualitative and quantitative factors. Key qualitative factors are management and the convergence of objectives between management and unitholders, which the team assesses via frequent interviews with trust management. Aside from establishing the existence of quality management, Challenger seeks to confirm that management has a clearly defined trust strategy; a high level of focus and knowledge; a proven track record, and; a robust organisational structure. Challenger’s quantitative research of individual trusts involves proprietary financial and valuation modeling. Financial modeling includes historical analysis and property income forecasts. Challenger’s valuation methodology relies on two models – an internal rate of return model to assess the relative value of trusts and a net present value model for assessing their absolute value.

At the portfolio construction phase, Challenger’s top-down research determines preferred property sector tilts and bottom-up trust specific research determines stock selection.

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 financial product issued by MLC Investments Limited ABN 30 002 641 661 and MLC Limited ABN 90 000 000 402 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 MLC call centre on 132 652 or on our website at www.mlc.com.au An investment in any product offered by a member company of the National group does not represent a deposit with or a liability of the National Australia Bank Limited ABN 12 004 044 937 or other member company of the National Australia Bank group of companies and is subject to investment risk including possible delays in repayment and loss or income and capital invested. None of the National Australia Bank Limited, MLC Limited, MLC Investments Limited or other member company in the National Australia Bank group of companies guarantees the capital value, payment of income or performance of any financial product referred to in this publication.