Monthly investment performance update

Fund Performance for October 2005

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

The PSS Board's primary responsibility is the management and investment of the Fund in the equitable and best interests of all members. The Board approaches this task by setting investment objectives for the Fund's investment options that maximise the real investment returns earned subject to tolerable levels of short-term volatility for each option.

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

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

Asset Class

Conservative

Balanced 50/50

Trustee Choice

Aggressive

Cash

35

12

12

2

Bonds/Fixed interest

35

28

8

0

Market neutral strategies

0

10

10

8

Total Defensive Assets

70

50

30

10

Australian shares

15

18

29

39

International shares

12

17

26

36

Property

3

10

10

10

Long/Short equities

0

5

5

5

Total Growth Assets

30

50

70

90

Total

100

100

100

100

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

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

Investment Option

July

Aug
Sept
Oct

Financial Year to End-Oct

Conservative

0.8

0.7
1.3
-0.5

2.3

Balanced (50/50)

1.2

0.7
1.8
-0.5

3.4

Trustee Choice

2.3

1.2
2.7
-1.1

5.1

Aggressive

2.4

0.7

3.7
-1.9

4.8

Cash

0.4

0.4

0.4
0.4

1.5

Bonds/Fixed interest

-0.1

0.7

-0.2
-0.1

0.4

Australian shares

2.5

1.9

5.0
-3.3

6.0

International shares (unhedged)

3.5

1.0

1.4
-0.3

5.6

International shares (hedged)

3.4

-0.2

3.5
-1.6

5.2

Property

0.4

-0.1

0.8
2.1

3.2

Sustainable

-0.1

-0.1

4.1
-3.1

0.8

Commentary

Global equity markets fell by 1.9% in local currency terms in October, giving up some of the gains made in the first three months of the financial year. In the US , the S&P 500 Index fell by 1.7%, as weak economic releases weighed on investor sentiment. The Australian equity market declined by 3.8% in October, due to concerns over the potential for a rise in interest rates, sustained high oil prices and a heightened inflation risk. Despite this fall, the Australian equity market was still up by more than 6% in the first four months of the financial year.

Global fixed interest markets weakened further in October, continuing the downward trend evident in September. The October weakness was driven by similar themes to those that dominated markets in September. This entailed the realisation that long-term bond yields were too low for an environment in which US short-term interest rates are expected to continue to rise, due to heightened inflationary concerns flowing from higher energy prices. The Australian bond market fared better than its global counterparts in October, but still under-performed cash.

The Fund's equity managers achieved strong relative (to benchmark) performance in the month of October, benefiting from the defensive positioning of their portfolios in a month in which equity markets declined. For the four months to the end of October, the Fund's international equity managers achieved performance marginally in excess of benchmark, while the performance of the Fund's Australian equity managers is now just below benchmark.

Greg Burt
Portfolio Manager
7 December 2005