Fund Performance for February 2007

• PSS default Fund
• PSS Cash Investment Option

Welcome to the monthly update on your Fund's investment performance.

The impact of investment performance on your final benefit varies from minimal if you are a contributing member to significant if you are a preserved benefit member or if you have transferred amounts from other funds. However, all members may find it useful to understand how your fund performs.

ARIA’s primary responsibility is the management and investment of the PSS Fund in the equitable and best interests of all members. ARIA approaches this task by setting an investment objective to maximise the real returns earned on investments subject to a tolerable level of short-term volatility.

PSS default Fund

Table 1: Asset Allocation as at end February 2007 (%)

Table 2: The PSS in 2006-07 as at end February 2007 (%)

The fund return numbers for each asset class in the table below are after fees and before tax. Two total fund return numbers are shown; the first is after fees and after tax (the return investors receive), while the second is after fees and before tax (the return that should be used when comparing the total fund return to the total fund benchmark return). Benchmark return numbers are before fees and tax.

The asset class benchmark return numbers show the market performance of the sector, while the asset class fund return numbers show what your Fund's performance was in that asset class sector.

* after fees and after tax;  * * after fees and before tax

 Table 3: Historical Fund Returns over the last 5 years (% p.a.)

Commentary:

Global financial markets experienced a sharp reversal towards the end of February, as concerns over the financial viability of some US mortgage lenders resulted in a general reassessment of investor risk appetite. This led to a sharp drop in equity prices, which unwound much of the gains achieved in the earlier part of the month. The Australian and Japanese markets shone, achieving increases of a little over 1%. However, other major markets fell, with the Swiss market down by almost 4% and the US and Hong Kong markets declining by more than 2%. Despite this setback, financial year to date performance by all major equity markets remains very strong. In the 8 months to the end of February, the Australian market rose by 18%, thereby matching the returns achieved in Germany and Hong Kong. During the same period, the US and Japanese markets advanced by around 12%.

The reassessment of risk at the end of February also had significant ramifications in fixed interest markets.  Although credit spreads widened, particularly for lower rated securities, there was a “flight to quality” which drove 10 year government bond yields down by 0.25% in both the US and Australia. As a result, fixed interest indices increased by more than 1% in February, easily surpassing the return from cash.  Despite the gains achieved in February, the return from Australian fixed interest in the 8 months to the end of February was below that of cash. By contrast, global fixed interest (hedged into Australian dollars) comfortably outperformed cash.  Currency movements were reasonably contained in February, although the Japanese Yen strengthened during the turbulence at month end. This financial year has seen the Australian dollar rise by 10% against the Yen, 6% against the US dollar and 2.5% against the Euro. The rise in our currency did not impact the Fund’s returns as all overseas investments are hedged into the Australian dollar.

The Fund’s after tax and fees return for the eight months ending February was 10.4%.  On an after fee but before tax basis, the return of 11.6% was only marginally below the benchmark return of 11.8.  

PSS Cash Investment Option  

Table 4: The PSS Cash Investment Option in 2006/2007 as at end February 2007 (%)  

 Table 5: Historical Fund Returns (%)  

Commentary:

The Cash Investment Option continues to deliver returns in line with the benchmark return, once account is taken of fees and taxes.

Steve Gibbs
CEO
19 March 2007