Monthly investment performance update

PSSap Fund Performance for December 2005

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

Table 1: Asset allocations for pre-mixed investment options as at end December 2005 (% )

This table shows the actual asset allocations of the four pre-mixed investment options at the end of December 2005. The other seven options are essentially single strategy options - see our product disclosure statement .

Table 2: Performance in 2005-06 as at end December 2005 (%)

The figures in the table are after fees and taxes and show the return for a member who was invested for the whole month in each option.

Commentary:

In December, global equities again rose strongly, up by 2.2% in local currency terms, with the strongest gains achieved in Japan (up 8%) and some European markets (up 4%). By way of contrast, the US market was flat, with emerging signs of slower economic growth impacting the market. The Australian equity market continued its strong upward rise, increasing by just under 3%. The strong rise in December resulted in global equities rising by 12% in the six months to December. The strongest advances were achieved by Japan (up 39%), Switzerland (up 21%) and Germany (up 18%). The Australian market rose by 14%, buoyed by large gains within the Materials (reflecting strong commodity price rises) and Energy (reflecting oil price hikes) sectors.

In December, short-term interest rates were raised in both the US (by 0.25% to 4.25%) and Europe (by 0.25% to 2.25%). In the US, short-term interest rates have risen consistently since mid 2004. In other parts of the world, notably Europe and Japan, fears that short-term interest rates would be raised resulted in a rise in bond yields in recent months. Consequently, in the six months ending December, the performance of international bonds, while positive, lagged the gains from cash. In Australia, bond yields did not rise by as much as yields in other counties. As a result, in the six months to December Australian bonds outperformed international bonds, but fell short of the return from cash.

Absolute performance of the four pre-mixed options in the six months to December was positive, with the largest gains achieved by the options with the greatest exposure to equities. During the same period, performance relative to benchmark for the four pre-mixed options was negatively impacted by under-performance from managers within Australian equities, property and international bonds. This just offset the positive contribution to relative returns from managers within international equities and market neutral hedge fund managers.