Investment option update _______________________________________________________________________

Future Directions Australian Bond

31 December 2011 Aim and strategy: To provide a total return, after costs and before tax, higher than the return from
the UBS Composite Bond (All Maturities) Index on a rolling 3 year basis through investing mainly in short and long term fixed interest securities, including government securities, government-related securities, corporate securities, asset-backed securities and hybrid securities (such as convertible notes) in both developed markets (Australian and overseas) and emerging markets.

Investment option performance*

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Investment option overview

Investment category Suggested investment timeframe Relative risk rating Investment style Fixed Interest Enhanced Fixed Interest 2 to 3 years Low - Medium Active Top 10 Securities Exposure
AUSTRALIAN GOVERNMENT QUEENSLAND TREASURY CORP TREASURY CORP VICTORIA NEW S WALES TREASURY CRP SECURITISED AUSTRALIAN MORTGAG WESTPAC BANKING CORP ING BANK (AUSTRALIA) LTD AUST & NZ BANKING GROUP THE SUPERANNUATION MEMBERS HOM WESTERN AUST TREAS CORP % 14.02% 11.49% 3.97% 3.56% 2.31% 2.18% 1.57% 1.49% 1.42% 1.29%

Asset Sector
Fixed interest securities and cash

Benchmark (%) 100

Range (%) 0-100

Credit Rating Exposure

AAA AA A BBB Sub Investment Grade Not Rated Cash

% 36.16% 20.42% 16.23% 13.87% 1.27% -0.10% 12.13%

* Past performance is not a reliable indicator of future performance

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Investment option update _______________________________________________________________________ Investment option commentary

In terms of underlying managers, both AMP Capital and Vianova Asset Management (Vianova) outperformed over the quarter. Over the quarter, AMP Capital retained its preference for short duration positions in Australian and New Zealand interest rate markets. The team viewed the market's tendency to ignore the solid domestic economic backdrop and focussed on a policy response by the Reserve Bank of Australia (RBA) to cut interest rates. Similarly in New Zealand, the macro data improved as the impacts of the Christchurch earthquake receded. However global concerns resulted in the market pricing in a stronger policy response than was felt appropriate, considering the balance of probabilities. This position detracted from relative performance. However, the currency and interest rates portion of the Fund contributed positively to overall performance. Positioning on the yield curve mitigated some potential loss whilst other positions proved to be beneficial over the quarter. In terms of underlying managers, both AMP Capital and Vianova Asset Management (Vianova) outperformed over the quarter. Vianovas underweight duration positioning weighed on returns over the quarter as yields rallied by 55 basis points (bps). Security selection and yield curve positioning were also positive contributors over the quarter. At the end of the quarter, the portfolio had less half the interest rate sensitivity of the benchmark.

Market commentary
Australian bond markets rallied in the December quarter due to the ongoing sovereign debt issues in Europe and erosion of risk sentiment. In mid-December, Australian 10-year bond yields fell to their lowest level since 1951 as global investors pushed Australian yields further towards those prevailing for US and German bonds. The RBA cut official interest rates in November and December by 25 bps at both meetings, taking the cash rate to 4.25% by quarter-end. The Board cited Europes debt crisis generating financial turmoil, Australias moderating growth and a milder inflation outlook as reasons for the cuts. Three-year Australian government bonds opened the quarter at a yield of 3.54% and closed 41 bps lower at 3.13%. Ten-year bond yields also fell, opening the quarter at 4.10% and closing 43 bps lower at 3.67%. The quarter started off positively in both equity and credit markets on the back of hopes of a comprehensive and credible solution to the Eurozone crisis at the European Union summit held in late October. However the market soon began to question implementation risks and by mid-quarter credit spreads had widened again due to sustained market and political pressures in the Eurozone. Chief amongst these concerns were warnings of further sovereign debt ratings downgrades and continued ambiguity on the ECBs role in supporting sovereign bond markets. The ECB followed through with its commitment to support markets in December by making longer-term financing for European banks available. The move helped credit markets rally into quarter-end.

Outlook
Bond yields in Australia are likely to trend higher on the back of resilient domestic data releases as the economic outlook improves and the benefits of the strength in the mining sector filter through to the broader economy. Our expectations are that global growth over the medium term will show sub-trend outcomes. The impact of fiscal austerity, deleveraging and a general lack of confidence argue strongly against any other outcome. However, from a valuation perspective, financial markets still appear to have run too far ahead of events. Domestically, the market expects the Reserve Bank of Australia to lower rates to the same level reached in the depths of the global financial crisis. While further policy action is likely to take place, in the absence of an actual financial system event, this pricing remains excessive. Similarly, bond yields in developed markets generally remain unrealistic in anything bar a systemic crisis scenario. While this scenario cannot by any means be discounted, to label it as a high-probability base case seems less than reasonable. Accordingly, our bias remains to be short duration, with a particular focus on the short-dated maturities of the Australian yield curve, where pricing seems both unrealistic for local conditions and global probabilities. Australian bonds are more attractive than global bonds given higher yields and less risk if things fall apart. Corporate debt is a better bet, but favour investment grade if equities remain a concern. Manager update Vianova Asset Management (absolute return strategies) The Vianova portfolio outperformed its benchmark in the December quarter.

Investment option update _______________________________________________________________________

In absolute terms, the portfolio performed strongly during the quarter. On a relative basis, the duration strategy underperformed the benchmark as bond yields fell. However, the sector strategy produced a very strong relative result as swap spreads widened significantly while flattening of the yield curve led to a strong performance for the managers yield curve strategy

Contact us
Web www.amp.com.au Phone 133 267 - Monday to Friday 8.00am to 8.00pm EST Email askamp@amp.com.au What you need to know
This publication has been prepared by AMP Life Limited ABN 84 079 300 379, AFSL No. 233671 (AMP Life). The information contained in this publication has been derived from sources believe to accurate and reliable as at the date of this document. No representation is given in relation to the accuracy or completeness of any statement contained in it. Whilst care has been taken in the preparation of this publication, to the extent permitted by law, no liability is accepted for any loss or damage as a result of reliance on this information. AMP Life is part of the AMP Group. In providing the general advice, AMP Life and AMP Group receives fees and charges and their employees and directors receive salaries, bonuses and other benefits. The information in this document is of a general nature only and does not take into account your financial situation, objectives and needs. Before you make any investment decision based on the information contained in this document you should consider how it applies to your personal objectives, financial situation and needs, or speak to a financial planner. The investment option referred to in this publication is available through products issued by AMP Superannuation Limited ABN 31 008 414 104, AFSL No. 233060 (ASL) and/or AMP Life. Before deciding to invest or make a decision about the investment options, you should read the current Product Disclosure Statement for the relevant product, available from ASL, AMP Life or your financial planner. Any references to the Fund, strategies, asset allocations or exposures are references to the underlying managed fund that the investment option either directly or indirectly invests in (underlying fund). The investment options aim and strategy mirrors the objective and investment approach of the underlying fund. An investment in the investment option is not a direct investment in the underlying fund. Neither AMP Life, ASL, any other company in the AMP Group nor underlying fund manager guarantees the repayment of capital or the performance of any product or particular rate of return referred to in this document. Past performance is not a reliable indicator of future performance.