PSS Fund Performance for November 2006

• 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 November 2006 (%)

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

The return numbers in the table below are after fees and before tax, except for the Total Fund return number which is after both fees and taxes. Benchmark numbers are before fees and taxes.

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

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

Commentary:

Global equity markets again recorded solid gains in November, continuing the trend evident in the first four months of this financial year. Equity market performance in recent months has benefited from robust investor risk appetite, expectations that US short term interest rates have peaked, a decline in the oil price, continued strong corporate profit growth and heightened takeover activity. In November, equity markets were further buoyed by a decline in US inflation and an associated reduction in bond yields. Australian equity market returns have exceeded those of its global counterparts this financial year, despite a pullback in resource shares. This has largely been due to heightened takeover activity, particularly amongst private equity groups.

Global fixed interest markets continued to strengthen in November, reflecting a further decline in bond yields. This was due largely to a moderation in both US economic growth and core inflation. In the first five months of this financial year, US 10 year bond yields declined by around 0.7%. This ensured that bond market returns comfortably exceeded those from cash, albeit falling short of those recorded by equity markets. The Australian bond market also strengthened in November, although to a lesser extent than its global counterparts. In the first five months of this financial year, Australian 10 year bond yields declined by 0.2%, during a period in which domestic short term interest rates rose modestly. This financial year has also been notable for a rise in the Australian dollar. This has eroded some of the gains from unhedged overseas investments.

The Fund's after tax and fees return for the five months ending November was 6.0%. While strong in an absolute sense, the return was below benchmark, due to underperformance from a majority of our active managers. Active managers typically find it difficult to outperform in strongly rising equity markets, such as those experienced recently.

PSS Cash Investment Option  

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

 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
21 December 2006