ANNUAL REPORT FOR THE 10 MONTHS ENDED 30 JUNE 2017

MFL MUTUAL FUND

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Welcome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Investment manager's report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Details of scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

Information on contributions and scheme participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

Changes relating to the scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Other information for particular types of managed funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Changes to persons involved in the scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

How to find further information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

Contact details and complaints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

CONTENTSMFL Mutual Fund ('MFL' or 'the scheme') was established in 1969 to provide New Zealanders with an opportunity to plan and save for retirement.

MFL is a registered superannuation scheme. The scheme was closed to new members on 16 September 2016.

The trustee and manager of the scheme (the trustee) is MFL Mutual Fund Limited. The trustee oversees the administration and management of the scheme and ensures members’ investments are managed in accordance with the trust deed.

The trustee is represented by a Board of Directors, which meets regularly throughout the period and maintains close contact with the investment manager. Further information about the directors of the trustee is available at mflmutual.co.nz.

ANZ New Zealand Investments Limited has been appointed by the trustee to be the investment and administration manager (the investment manager) of the scheme.

Because of a change in the scheme’s financial year end (previously 31 August), this report covers a period of 10 months – from 1 September 2016 to 30 June 2017.

Further information concerning the scheme is available on the ‘scheme’ register of Disclose. See page 16 for more details.

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WELCOMEI’m pleased to present this annual report for the MFL Mutual Fund for the period ended 30 June 2017 .

MFL returns over the period reflect a spell of market weakness in the last few months of 2016 when listed property share prices fell, caused by a rise in bond yields . After a long stretch of particularly strong growth, the outcome was some months of negative returns . However, since the beginning of 2017, we’ve seen a gradual improvement in performance and the MFL unit price .

During the scheme’s history, MFL returns have been extremely steady . However, performance is always subject to changes in investment markets . I therefore encourage you to focus on periods longer than one or two years, where the impact of any short-term weakness has the chance to be absorbed . Over the page, ANZ Investments provides a more detailed account of fund performance and an outlook for the year ahead .

During the period, the following key events took place .

n As planned, MFL was closed to new members on 16 September 2016 . However, it continues to operate for you as an existing member, meaning you can continue to contribute and increase your investment into the future .

n In November 2016, the scheme officially transitioned to the new regulatory regime, the Financial Markets Conduct Act 2013, as a ‘restricted scheme’ . Changes under the Act include more consistent disclosure and reporting for members, such as the annual fund update .

n We updated you on the position relating to all investments, including confirming the scheme has no direct holdings in companies involved in the manufacture of controversial weapons and tobacco .

Together with investment and administration manager, ANZ Investments, we’ve also delivered these new benefits and services:

n In January, the management fee for MFL was reduced, resulting in a total reduction of 26% for the fund since January 2016 .

n Access to your MFL account online using ANZ Internet Banking (even if you don’t bank with ANZ) .

n A new website to help keep you up to date with the latest fund information, and to help you maximise your membership in the scheme .

n The repurposed Fund Watch newsletter containing news and developments concerning your investment .

n Access to general insurance and life insurance discounts .

As always, I encourage you to take an interest in your investments and to contact your financial adviser to discuss your personal financial plan and progress . ANZ Investments will be happy to put you in touch with an adviser in your area if you need one .

Thank you for your ongoing support . It’s a pleasure having you in the scheme and to be helping contribute positively to your financial future .

Mark Cross Chairman MFL Mutual Fund Limited

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“ MFL returns over the period reflect a spell of market weakness in the last few months of 2016 when listed property share prices fell, caused by a rise in bond yields… During the scheme’s history, MFL returns have always been steady… I therefore encourage you to focus on periods longer than one or two years, where the impact of any short-term weakness has the chance to be absorbed.”

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INVESTMENT MANAGER’S REPORTMFL MUTUAL FUNDMFL Mutual Fund currently consists solely of the MFL Property Fund (the fund) .

The fund is an actively managed portfolio that invests predominantly in Australasian listed property, Australasian equities and international listed property . It may invest in cash and cash equivalents and fixed interest assets .

Some underlying investments are held directly and some are held via an underlying fund . Listed property includes trusts or companies that own or invest directly in commercial, office and industrial property .

The fund’s equity investments will predominantly be shares in listed trusts or companies with a substantial property component . These could include, for example, ports, airports, toll roads, utility networks and retirement villages .

The chart below shows the target investment mix, which represents the mix of assets that the fund generally intends to invest in .

FUND PERFORMANCE AT 30 JUNE 2017

10 months (%)

1 year (%)

5 years (% p.a.)

10 years (% p.a.)

MFL Mutual Fund -4 .17 -1 .48 12 .57 4 .70

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5%

Australasianequities

25%

Cash and cash equivalents

5%

Listed property

65%

Target investment mix

Note: As a result of the financial year end for MFL changing from 31 August to 30 June (for accounting purposes), this table shows a corresponding return for the 10-month period covered by this annual report, as well as rolling annualised returns for the standard 12-month and longer terms .

Performance is after fees (excluding administration fees charged directly to member accounts) and before tax . This is represented by changes in unit prices plus any applicable tax credits . Past performance is not indicative of future performance . Performance can be negative as well as positive .

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PERFORMANCE COMMENT While MFL’s 10- and 12-month performance was disappointing – particularly after last year’s 19 .90% return – this was the first negative return MFL had reported since 2009 .

In last year’s report, we cautioned on the likelihood of some short-term vulnerability for listed property, should interest rates rise more quickly than expected in the US .

And so it turned out to be . Following Donald Trump’s win in the US presidential elections, there was a sharp move higher in global bond yields . This came on the back of prospects of stronger economic growth and higher interest rates due to proposed tax cuts and infrastructure spend .

Typically, when bond yields rise quickly, higher-yielding sectors of the equity market – including the listed property sector – can come under pressure, and this was reflected in MFL’s unit price moving lower late in 2016 .

However, since the start of 2017, many of the proposed expansionary policies have not come to pass and bond yields have retreated somewhat . As a result, the global listed property sector has moved off its lows and trended back towards the level reached at the end of the last financial year .

MARKET COMMENT

During the period, the weakest markets MFL was exposed to were the Australian listed property sector (which fell -5 .9%) followed by the Australian property-related sector (with -6 .1%) . As nearly 30% of MFL was invested in these two sectors at the end of the financial year, their returns negatively impacted performance .

The weakest stocks in the Australian property sector included retail mall giants Scentre Group and Westfield, which fell -13 .9% and -22 .0% respectively on weaker retail sales growth and the expected entry of Amazon to the Australian market . Clearly online retail is creating big headwinds for all ‘bricks and mortar’ retail, as mall owners are having to invest more capital to attract the best retailers and create a more vibrant destination for shoppers .

In the property-related sector, the weakest performer was Aveo Group, which fell on poor press relating to the treatment of some of its retirement village residents . However, hospital and aged-care operators were generally weaker over the year as well .

On a more positive note, New Zealand listed property ended the year up 1 .8%, showing its resilience in a world where most listed property markets were weak . The best-performing property stocks during the period were Property for Industry, which returned 9 .5%, followed by Vital Healthcare Property Trust, with 5 .2% .

OUTLOOK

Our view is that economic growth around the world is picking up, but remains relatively fragile for a variety of reasons . Apart from the accumulation of high levels of debt at both the household and government level, significant technology and demographic trends are reducing household income growth . This means the cyclical recovery in global growth is likely to be challenging .

For this reason, we believe economic growth and inflation will pick up slowly over the next few years and that the world’s major central banks will gradually move interest rates back to more ‘normal’ levels .

While this will eventually lead to higher interest costs for listed property vehicles (as they roll off lower fixed terms), steadily increasing economic growth and higher inflation mean that property companies will be able to raise rents, thereby offsetting higher interest costs . So, this environment can still be relatively buoyant for listed property companies .

However, we caution once again that while we expect a slow increase in interest rates, a sharp increase in longer-term inflation expectations (leading to higher bond yields) would impact the sector as it did in late 2016 . Therefore, there is a likelihood of greater volatility, albeit off a low base .

Meanwhile, the fundamentals for the listed property sector remain sound . By that we mean the balance between the supply and demand for new space is relatively stable in most markets, and vacancy rates remain at or near record lows (particularly in New Zealand) . That also means rental growth is likely to remain relatively buoyant as tenants have few alternative options .

In addition, the demand for high-quality, well-located properties continues to be remarkably strong – and this should support the underlying valuations of properties .

More importantly, we think that the key benefits of property are the contracted income stream delivering a relatively high income yield and inflation protection . This will continue to provide resilient investor returns over the long term .

MFL UNIT PRICE AS AT 30 JUNE

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$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

Jun-2008

Jun-2009

Jun-2010

Jun-2011

Jun-2012

Jun-2013

Jun-2014

Jun-2015

Jun-2016

Jun-2017

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DETAILS OF SCHEME

NAME OF THE SCHEME MFL Mutual Fund

TYPE OF SCHEME Restricted superannuation scheme . The scheme is closed to new investors .

TRUSTEE AND MANAGER MFL Mutual Fund Limited (trustee)

INVESTMENT AND ADMINSTRATION MANAGER ANZ New Zealand Investments Limited (investment manager)

PRODUCT DISCLOSURE STATEMENT As the scheme is a restricted scheme, there is no product disclosure statement .

FUND UPDATE The scheme’s latest fund update for the year ended 30 June 2017 was made publicly available on 29 September 2017 . This is available on the offer register at companiesoffice .govt .nz/disclose .

FINANCIAL STATEMENTS AND AUDITOR’S REPORT The scheme’s latest financial statements for the 10 months ended 30 June 2017, and the auditor’s report on those financial statements, were dated 25 October 2017 and were lodged with the Registrar on 27 October 2017 . See page 16 for more details .

The information in this document relates to the 10 months from 1 September 2016 to 30 June 2017 (the period) .

MEMBERSHIP The table below provides a summary of the numerical changes in the membership of the scheme during the period .

INFORMATION ON CONTRIBUTIONS AND SCHEME PARTICIPANTS

MEMBERSHIP MOVEMENTS Number of members Total amount ($000)

MEMBERS AT 1 SEPTEMBER 2016

Contributing members 3,617

Non-contributing members 16,679

Total members at 1 September 2016 20,296

Total members’ accumulation at 1 September 2016 548,746

PLUS NEW MEMBERS

Transfers from other schemes –

Other new members 65

Total new members during the period 65

LESS EXITED MEMBERS

Retirement 527

Death 93

Transfers to other schemes –

Full withdrawals 27

Total members exited during the period 647

MEMBERS AT 30 JUNE 2017

Contributing members 2,872

Non-contributing members 16,842

Total members at 30 June 2017 19,714

Total members’ accumulation at 30 June 2017 501,030

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CONTRIBUTIONS

The table below provides a summary of the contributions received during the period by way of:

CHANGES RELATING TO THE SCHEME

CONTRIBUTION TYPE Number of members Total amount ($000)

Member contributions* 3,416 10,187

Employer contributions – –

Transfers from other schemes – –

Total contributions 10,187

* All member contributions are voluntary

This section describes any material changes to the scheme’s nature, investment objectives and strategy, and management during the period .

CLOSING OF THE SCHEME TO NEW MEMBERS After the Financial Markets Conduct Act 2013 (FMC Act) was passed, the trustee decided it was in the best interests of members to restrict membership to existing members and to cease offering the scheme to new members .

This would enable the trustee to focus solely on meeting the needs of existing members and to reduce costs, while still overseeing the scheme on the members’ behalf . It also meant the scheme could avoid the significant costs of transitioning into the new FMC Act regime as an “open” scheme .

TRANSITION TO THE FMC ACT On 12 November 2016, the scheme transitioned to the FMC Act regime and became a “restricted scheme” . Before transition, the scheme was governed by the Superannuation Schemes Act 1989 and offered to the public under the Securities Act 1978 .

The transition included activities such as:

n obtaining a manager’s licence

n updating the scheme’s trust deed and statement of investment policy and objectives (SIPO) .

CHANGES TO THE TRUST DEED The scheme’s trust deed was amended on 8 November 2016 in connection with the transition to the FMC Act, to reflect that the scheme is closed to new members and to make some other amendments for the more efficient operation of the scheme .

CHANGES TO THE TERMS OF OFFER OF INTERESTS IN THE SCHEME As the scheme is closed to new members, it was registered under the FMC Act with restricted superannuation scheme status . Therefore, there is no requirement for offer documents to be prepared .

CHANGES TO THE SCHEME’S SIPO The SIPO was updated as part of the transition to the FMC Act noted above .

CHANGES TO THE NATURE OR SCALE OF THE RELATED PARTY TRANSACTIONS There were no material changes to the nature or scale of the related party transactions entered into for the scheme during the period . All related party transactions were conducted on arm’s-length terms .

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WITHDRAWALS The table below sets out the withdrawals made from the scheme during the period .

WITHDRAWAL REASON Number of members Total amount ($000)

Partial withdrawals* 18 184

Full withdrawals* 27 543

Death 93 4,903

Retirements 934 24,987

Transfers to other registered schemes – –

Total withdrawals 1,072 30,617

*Includes hardship, permanent emigration, serious illness and other voluntary member withdrawals

UNIT PRICES The table below sets out the unit prices for the scheme at the start and end of the period .

FUND At 31 August 2016 At 30 June 2017

MFL Mutual Fund 4 .0126 3 .8287

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TRUSTEE’S STATEMENT

MFL Mutual Fund Limited, as trustee of the scheme, confirms that:

n all the contributions required to be made to the scheme in accordance with the terms of the trust deed have been made

n all the benefits required to be paid from the scheme in accordance with the terms of the trust deed have been paid, and

n the market value of the scheme property at 30 June 2017 equalled or exceeded the total value of benefits that would have been payable had all members of the scheme ceased to be members at that date and had provision been made for the continued payment of all benefits being paid to members and other beneficiaries as at 30 June 2017 .

CHANGES TO PERSONS INVOLVED IN THE SCHEME

TRUSTEE Before 12 November 2016, MFL Mutual Fund Limited was the trustee of the scheme . On 12 November 2016, MFL Mutual Fund Limited became the trustee and manager of the scheme .

Directors of the trustee The directors of the trustee as at 30 June 2017 were:

n Mark Cross, Chairmann The Rt Hon Sir William Birchn Paul Fyfen Dr Edward Schuckn Glennis Webber

There were no changes to the directors of the trustee during the period .

AUDITOR KPMG was the auditor to the scheme throughout the period .

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ON DISCLOSE Disclose is a website that contains two registers – an offer register and a scheme register .

To find the fund updates, go to:

companiesoffice.govt.nz/disclose

Click SEARCH OFFERS and search for ‘MFL Mutual Fund’

To find the SIPO, trust deed and financial statements, go to:

companiesoffice.govt.nz/disclose

Click SEARCH SCHEMES and search for ‘MFL Mutual Fund’

ON OUR WEBSITE Other valuable information and resources to help you manage your investment, including transaction forms, fund performance, unit prices and annual fund updates are available on the MFL website .

mflmutual.co.nz You can also obtain a copy of any of the above information on request and free of charge by contacting ANZ Investments (contact details are on the next page) .

HOW TO FIND FURTHER INFORMATION

TRUSTEE MFL Mutual Fund Limited

Registered office:c/- Dunne Consulting Group LimitedLevel 2, Unit F427-29 William Pickering DriveAuckland 0632

Registered office of MFL:23-29 Albert Street, Auckland 1010

INVESTMENT MANAGERANZ New Zealand Investments Limited

ANZ Centre, 23-29 Albert Street, AucklandFreepost 324, PO Box 7149, Wellesley StreetAuckland 1141

IF YOU HAVE A COMPLAINTFor any problems or complaints, contact your financial adviser first . If you don’t have a financial adviser, or your financial adviser has been unable to help you, please let ANZ Investments know using the contact details above . As the administration manager of the scheme, they are committed to resolving your complaint as quickly as possible .

If ANZ Investments is unable to resolve your complaint, you may choose to contact the trustee using the contact details on the left .

If you’re still not satisfied, you can get free independent assistance from the following dispute resolution scheme .

DISPUTE RESOLUTION SCHEMEInsurance and Financial Services Ombudsman Scheme

81 Molesworth Street, WellingtonPO Box 10-845Wellington 6143

You won’t be charged a fee by ANZ Investments, the trustee or the dispute resolution scheme for investigating or resolving a complaint .

CONTACT DETAILS AND COMPLAINTS

Call 0800 736 034 or +64 9 356 4000

service@anzinvestments .co .nz

Investments in the scheme are not deposits in ANZ Bank New Zealand Limited, Australia and New Zealand Banking Group Limited or their subsidiaries (together ANZ Group), nor are they liabilities of ANZ Group . ANZ Group does not stand behind or guarantee ANZ New Zealand Investments Limited . Investments are subject to investment risk, including possible delays in repayment, and loss of income and principal invested . ANZ Group will not be liable to you for the capital value or performance of your investment . Your investment in the scheme is not guaranteed by ANZ Group, MFL Mutual Fund Limited, any of their directors or any other person .

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