Monthly investment performance update

PSSap Fund Performance for January 2006

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

Table 1: Asset allocations for pre-mixed investment options as at end January 2006 (% )

This table shows the actual asset allocations of the four pre-mixed investment options at the end of January 2006. The other seven options are essentially single strategy options - see our product disclosure statement.

Table 2: Performance in 2005-06 as at end January 2006 (%)

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:

January was another strong month for global equity markets, with the largest gains achieved in Canada (up 6%), Germany (up 4.9%) and the Netherlands (up 4.6%). The US market again lagged other markets, rising by just 2.7%. The Australian equity market continued its strong upward rise on the back of surging resource and energy stocks, increasing by just over 4%. The gains in January resulted in global equities rising by 15.5% in local currency terms in the seven months to January. The largest advances were achieved by Japan (up 44%), Switzerland (up 25%) and Germany (up 24%). During the same period, the Australian market rose by 19%, buoyed by large gains within the Materials (reflecting strong commodity price rises) and Energy (reflecting oil price hikes) sectors.

At the end of January, short-term interest rates were again increased by 25 basis points (0.25%) in the US, to a level of 4.5%. This marked the fourteenth successive meeting at which the US Federal Reserve hiked US short-term interest rates by 25 basis points. Given the combination of low global bond yields, improving global economic growth and Central Banks operating with a bias to raise short-term interest rates, it was no surprise to see bond markets, both globally and in Australia, again underperform the return from cash in January. In the seven months to the end of January, although international and Australian bonds achieved small positive returns, they lagged the return achieved from cash.

Absolute performance of the four pre-mixed options in the seven months to January was positive, with the largest gains achieved by the options with the greatest exposure to equities. The return from Bonds / Fixed Interest, while low, was well within the expected range of outcomes for this option. Asset class performance relative to benchmark in the seven months to the end of January was strong in international equities and market neutral strategies, but less successful in bonds / fixed interest and alternative investments within Australian equities.