PSS Fund Performance for March 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 March 2007 (%)

Table 2: The PSS in 2006-07 as at end March 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:

Despite increased volatility, equity markets strengthened again in March. Australian equities rose by a very impressive 3.3%, buoyed by large gains in information technology, telecom, resource and energy stocks. International equities rose by 1.5% in hedged terms, but a rise in the Australian dollar meant that the return to unhedged investors was minus 0.8%. In March, the strongest gains were achieved in Asia ex Japan (up 5%) and Europe (up 4%). The US rose by 1%, but Japan fell by 2%.  Financial year to date performance by major equity markets remains very strong. During this period, the Australian market rose by 22%, compared with 16% from hedged international equities. However, a strong rise in the Australian dollar eroded the returns from unhedged international equities to just 6%. The strongest gains in the 9 months ending March were achieved by Germany and Hong Kong (both up by 22%). The US and Japan rose by just under 12%, while the UK advanced by 8%.

Global bond yields rose again in March, reflecting increased concerns over higher inflation, a less optimistic outlook for short-term interest rates and a reversal of investor risk aversion that was evident towards the end of February.  As a result, both Australian bonds (down 0.3%) and international bonds (flat) underperformed the return from cash (up 0.5%).  In the 9 months to the end of March, Australian bonds (up 3.7%) underperformed cash (up 4.7%). However, international bonds (up 6.2%) fared better.  The Australian dollar rose again in March, reaffirming the trend evident in the earlier part of this financial year. The rise in our currency has not impacted the Fund’s returns as all overseas investments are hedged into the Australian dollar.
The Fund’s after tax and fees return for the nine months ending March was 12.8%.  On an after fee but before tax basis, the return of 13.9% was only modestly below the benchmark return of 14.2.

PSS Cash Investment Option  

Table 4: The PSS Cash Investment Option in 2006/2007 as at end March 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
30 April 2007