Annual Report 2005/06

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2 PSSap Annual Report 2005/06

This is important

The information in this Annual Report Pack is general information only and has been prepared without taking into account your personal objectives, financial situation or needs. You should consider any advice in this book in light of your personal objectives, financial situation or needs before acting on it. You may wish to contact a licensed financial planner to do this. If you are looking at acquiring a financial product, you should obtain a Product Disclosure Statement and consider its contents before making any decisions. Neither the Australian Reward Investment Alliance (ARIA), formerly the PSS Board, nor the Australian Government takes any responsibility for the services or guarantees the performance of any product provided by third parties including American International Assurance Company (Australia) Limited (‘AIG Life’ or ‘the insurer’), State Super Financial Services Australia Ltd (‘SSFS’) and Members Equity Bank (‘ME’). You are under no obligation to use the services of SSFS, ME or the income protection offered by AIG Life and should always compare financial products to find one which best meets your personal objectives, financial situation and needs. We will provide you with any additional information you may reasonably need to understand your benefit entitlements, including death and TPD benefits, insurance options, investment options and other contribution levels. Contact details are on page 36.

This document is part of your periodic statement for your PSSap account and was prepared on 28 August 2006. The components of your periodic statement are the Member Statement and Annual Report to Members.

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Thanks to our Member Editorial Panel, who have told us that your

Annual Report Pack is ‘easy to read’ and a ‘useful source of information’.

Chairman’s report ... 2

News up front ... 6

In the pipeline ...11

Your PSSap: Features ... 14

PSSap investments ... 15

How your PSSap super is invested ... 15

Overview and results ... 16

Investment objectives and strategies ... 16

How your PSSap super is valued ... 24

PSSap derivatives policy ... 25

PSS Board for 2005/06 ... 28 Handling complaints ... 29 Financial statements ... 32 Contact us ... 36

Step inside

MEMBER

TESTED

PLAIN

ENGLISH

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Chairman’s report

Dear member,

At the PSSap we understand how vital your super is.

Your Annual Report pack contains lots of useful information

to update you on how your Fund has performed and some

steps you can take to manage your super.

First-year year of growth for the PSSap

I am pleased to report on a very strong first year of growth for your Fund. Since opening on 1 July 2005, the PSSap has accumulated over $100 million in assets and 21,000 members. It’s been a good year for investment returns in Australia and our default option, Trustee Choice, finished 2005/06 with a strong return of 14.3%. To see the returns for all our investment options, turn to page 17.

A new governance structure

On July 1 2006, the PSS Board and CSS Board merged to become Australian Reward Investment Alliance – ARIA. For members, there will no change to the benefits and entitlements that you have in the PSSap, however, you will notice over the next year, improvements to your website and communications. This merger enables us to eliminate outdated complexities to ensure the Australian Government’s super arrangements are in line with best practice governance standards and can continue to meet your needs into the future. To read more about ARIA turn to page 7.

PSSap receives recognition

In our first year, our achievements were recognised by the superannuation industry when the PSSap was awarded a Best New Product Finalist 2005 from SuperRatings. We also received a Gold Star rating from Super Ratings, AAA Rating from Rainmaker’s Selecting Super and one of only two CMSF Excellence Awards for the personal way we welcome members. I am delighted with this recognition we have achieved.

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News up front 3

Chairman’s report

In the year ahead

We have plans to bring educational workshops on super to your workplace so that you can make informed decisions about your PSSap super. We will also continue to develop new products and services to make managing your super easier. We are looking forward to improving our services to you and will continue to work hard to ensure your super rewards you in your retirement.

And finally, thanks

I would like to thank our management team and staff, administrator (ComSuper), custodian (JPMorgan), insurance provider (AIG Life), investment managers and other service partners, all of whom have worked so hard to deliver an outstanding service. I would also like to acknowledge the Minister for Finance and his department for their support and effort during the year.

The Board and its staff are proud to work for employees of the Australian Government.

Yours sincerely

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Cathy Freeman on her way to winning gold in the women’s 400 metre event at the Sydney 2000 Olympics.

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Stepping up

to Gold

Silver in 1996; Gold in 2000. Cathy Freeman may have been running

fast on that euphoric day but her step up to the podium didn’t happen

overnight. Freeman’s international athletics career may have started

with gold for Australia in the women’s 4 x 100 metre relay at the

Auckland 1990 Commonwealth Games, but it took her 10 years

to realise her dream of Olympic gold in Sydney.

Small steps can change a lot of things. To ensure that you have

enough funds for when you retire, you need to step off to the right

start. Set goals. Know your fund. Make a plan.

Saving when you’re young and free of larger financial responsibilities

can help you build wealth for when you need it. Step it up now.

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PSSap Super steps: ages 18 – 25

How much will I need?

The WESTPAC-ASFA RETIREMENT LIVING STANDARD at www.superannuation.asn.au/super provides a step-by-step guide to how much you may need in retirement.

How much do I have?

Check your MEMBER STATEMENT to keep in step with your balance. How much could I get?

Go to YOUR ACCOUNT at www.pssap.gov.au where, with a secure access number, you can check your current benefi t estimate or project how much your PSSap super may be worth when you retire using the Super Projector.

What services does the PSSap offer? See your PSSap features on page 14.

Where can I get help?

The Contact us section on page 36 shows you the steps to take when accessing all the information you need to help you manage your PSSap super. The PSSap also provides free educational workshops to help you make the most of your super.

Go to www.pssap.gov.au for more information.

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go to www.pssap.gov.au

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In just a few small steps, you can get up-to-date with the latest

news and changes which may affect your super.

If you would like to receive important updates on your super by email, simply register your details in YOUR ACCOUNT at www.pssap.gov.au, send us an email or call us on

1300 725 171 and provide your email address.

News up front

We’ve had a great first year

Since opening on 1 July 2005, the PSSap has accumulated $100 million in assets and 21,000 members. The investment option which most of our members invest in, the Trustee Choice option, finished the 2005/06 financial year with a return of 14.3%.

The superannuation industry has awarded the PSSap with:

• Best New Product Finalist 2005 (Super Ratings)

• Gold Star Rating (Super Ratings)

• AAA Rating (Selecting Super)

• Gold and one of the year’s two Excellence Awards, for the personal way we welcome members (CMSF 2006).

PSSap CEO Steve Gibbs, says, ‘The PSS Board set out to deliver a fund for Australian Government employees and employers which would meet their needs now and in the future.

‘These ratings and awards are an indication we are off to a good start, but most importantly give our members independent assurance we are focused on looking after them.’

Great news for members

working overseas

We are pleased to announce significant improvements to insurance for members working overseas. The restrictions on periods of time and locations have been lifted for both Death & TPD cover and income protection. Any claims arising from acts of war, or where the member is in active service in the armed forces of any country or international organisation, are excluded. The changes took effect on 1 August 2006 and cover members who have been employed overseas within 12 months prior to 1 August 2006.

For more information, see the LATEST NEWS

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News up front

ARIA starts, to serve your interests better

Your new Trustee, ARIA, started its job on 1 July 2006.

The superannuation environment in Australia has undergone significant change over the past few years, with financial services reform, increased regulation and Choice of Fund. Our existing structure, in combination with that of the Commonwealth Super Scheme (CSS) Board, created unnecessary duplications which meant that super arrangements for Australian Government employees would not have been sustainable or cost-effective in the long-term.

It was obvious that we (the PSS Board and the CSS Board) had to adapt in order to continue to meet members’ needs into the future.

So we merged to create ARIA, a simplified, sustainable and more effective governance structure which will greatly enhance our ability to serve the interests of members. The Trustees of ARIA were previously members of the PSS and CSS Boards and their responsibility remains the same: to manage and invest the Fund to maximise

benefits to members, with profits going to members.

The new structure will enable us to introduce a range of improvements for your Scheme. We will be able to:

• achieve new cost efficiencies through the elimination of outdated complexities and duplications in administration, investment, liability management, risk management and regulatory compliance, which will have a positive effect on investment returns over time

• ensure sustainability for the future with the use of a single investment trust which will provide greater economies of scale and assist us to maintain competitive cost structures

• maintain a strong governance structure in line with the Australian Government’s new best practice corporate governance principles, to maintain our high levels of accountability and transparency, and

• improve communication and education services with the delivery of seminars and individual consultations to members at their place of work.

There is no reason to change the strengths of the PSSap, and your entitlements and benefits will remain the same.

We look forward to reporting to you at the end of the next financial year, and invite you to find out more about ARIA at www.aria.gov.au

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Your Government Super at Work

ARIA is the Trustee which from 1 July 2006:

• manages the PSSap, PSS and CSS – schemes set up solely to meet the superannuation needs of Australian Government employees – representing over $15 billion on behalf of 298,000 members • is appointed by the Australian Government as the default Fund for

Australian Public Service agencies to ‘act in your best interests’, a responsibility which is protected by law

• represents 30 years’ experience working for Australian Government employees and employers

• understands your employment conditions and shares your dedication to the value of community

• maximises your benefit through the cost efficiency of a pooled investment trust, and

• is in line with Australian Government best practice corporate governance principles.

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News up front

Our purpose and values remain the same

We believe it’s important you know the purpose and values of the organisation looking after your money.

OUR PURPOSE IS: to help past, present and future Australian Government employees and their families make the most of their financial future. We do this by aiming for consistently good returns at a low cost through disciplined investment frameworks. We also provide you with information and general advice to help you develop the knowledge and skills you want to manage your super confidently.

WE VALUE our responsibilities to manage and invest the Fund according to ARIA’s policies to maximise the benefits to members and to act in members’ best interests. We also value trust through collaboration, stewardship, cleverness, integrity, courage and community.

What’s in a name?

We conducted discussions and research with members, employers, key Government departments, as well as our administrator, custodian and staff. Their feedback showed it would have been too confusing to use the name of one of the Schemes and too cumbersome to call ourselves the PSS/CSS/ PSSap. We were encouraged to create a name that better reflected our purpose and role:

• Australian – we work for Australian Government employees who work for the Australian community

• Reward – we believe that Australian Government employees deserve to be rewarded with world-class superannuation arrangements • Investment – our core activity is to manage the investments of the

Funds to maximise benefits for members

• Alliance – we bring world-class service partners together to work in the best interests of members

PS. Our logo uses the seven points of the Federation Star to illustrate your super lifecycle – we will be with you from small beginnings through growth to retirement.

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Gains in governance

The objective of the PSS Governance Advisory Service is: to protect and enhance value for members through identification of environmental, social and corporate governance risks of present and future investments; and active communication of those risks with relevant stakeholders. In 2005/06 the PSS and CSS continued to influence better governance in Australian companies.

Director share trading was one area where research we commissioned from our Governance Advisory Service strengthened the case made by corporate regulators ASIC and the ASX (Australian Stock Exchange) for companies to be more vigilant in complying with share trading policies.

We also made representations to the ASX as part of a working group on Corporate Social Responsibility; to help companies understand how to assess risks arising from environmental, social and corporate governance factors – issues that can affect stock-market returns to long-term investors.

The Super Co-contribution

and your super

Did you know that if you put some money into your PSSap account as an after-tax contribution, the Government’s Super Co-contribution Scheme could match your payments by up to 150%?

It’s a helping hand to which you could be entitled, and one which could dramatically boost the value of your PSSap account. To qualify for a Super Co-contribution you must earn less than $58,000 per annum and make personal (after-tax) contributions to your super.

You can use the Super Co-contribution calculator www.ato.gov.au to see if you are eligible to receive a Super Co-contribution. For more information go to www.pssap.gov.au or call us on 1300 725 171.

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News up front

2006 Budget proposed

changes

The Government has announced

significant planned changes to the taxation of superannuation benefits received from a taxed superannuation fund, such as the PSSap. The changes are proposed to take effect from 1 July 2007.

Among the Government’s proposed changes are:

• the abolition of Reasonable Benefit Limits; and

• the abolition of tax paid on lump sums and pensions received from a taxed superannuation fund.

In addition, the Government also announced planned changes to the way in which you may draw down your superannuation pension, which are also to apply from 1 July 2007.

All these measures are yet to be passed as law. These changes are proposals ONLY at this stage, and the Government is currently consulting with the industry and community on the changes.

If you require any further information in relation to the proposed changes announced by the Treasurer and how they may impact on the withdrawal of your benefits, we recommend that you seek professional financial planning advice. Further information regarding the

proposed tax changes can be found

at www.simplersuper.gov.au

We will keep you informed with regular updates on the news section of the website

at www.pssap.gov.au

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In the pipeline

In the pipeline

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Edmund Hillary (right) with Tenzing Norgay after stepping on top of Mt Everest in 1953. Image courtesy of the Royal Geographical Society.

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The biggest

step of all

On 29 May 1953, Edmund Hillary and Tenzing Norgay stepped up on

to a small snow cone. They had conquered the tallest peak on earth, Mt

Everest. On the summit, Hillary took photographs of Tenzing and Tenzing

buried biscuits in the snow as a Buddhist offering. After only 15 minutes

they then began their dangerous descent.

The expedition leader, Colonel John Hunt, attributed the success of the

climb to good advice received from other experienced climbers, careful

and thorough planning, good oxygen equipment and favourable weather.

You probably don’t need oxygen equipment or favourable weather to

build up your super but you will breathe more easily if you take all the

professional advice you can and plan thoroughly for retirement. Do it now.

PSSap Super steps: ages 26 – 44

Check your MEMBER STATEMENT to keep in step with your balance.

How much could I get?

Go to YOUR ACCOUNT at www.pssap.gov.au where, with a secure access number, you can check your current benefi t estimate or project how much your PSSap super may be worth when you retire using the Super Projector.

What services does the PSSap offer? See your PSSap features on page 14. Where can I get help?

The Contact us section on page 36 shows you the steps to take when accessing all the information you need to help you manage your PSSap super. The PSSap also provides free educational workshops to help you make the most of your super.

Go to www.pssap.gov.au for more information.

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A snapshot of what the

PSSap offers you.

The PSSap is a ‘profit for members’ fund, which means that, after fees and taxes, investment earnings are returned to members. The PSSap offers you a low-cost, long-term way to save for your retirement.

It is an accumulation fund which means that the money you and your employer contribute, along with any money you transfer into the PSSap from other funds will ‘accumulate’ with investment earnings (which can be negative) to form your retirement benefit.

From 1 July 2006, you can choose the fund that you want to care for your super. For many PSSap members, the choice is a ‘no brainer’. Why would you choose to leave the fund that rewards your contribution to the Australian community with:

• 15.4% employer contributions for you

• competitive returns

• all profits returned to members (after fees, expenses and taxes are deducted from investment earnings)

• realistic fees (your employer also helps with fees), and

• no commissions paid to financial planners. As a PSSap member, you also have access to:

• low cost home loans and banking services through Members Equity Bank, and

• licensed financial planners through State Super Financial Services.

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PSSap investments

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Your PSSap investments

We aim to deliver consistent

returns and useful services,

at a low cost to you.

How your PSSap super

is invested

We pool your super with that of members in the PSS and CSS* in a pooled superannuation trust, which is invested in accordance with the investment options you choose.

You can mix and match your investment choices in a number of ways and can switch investment strategies at any time.

If you do not choose an investment option when you join, your money will be invested in the PSSap default option called ‘Trustee Choice’. The investment strategy for this option is based on that of the PSS Default Fund where investments are spread over a number of asset classes with the goal of maximising the long-term real return on contributions while reducing short-term risks to a level we consider prudent.

All investments carry risk, and the opportunity to choose how your super is invested carries with it a responsibility to make well informed decisions appropriate to your personal objectives, financial situation and needs. Different risk levels are available to suit the level of risk you are prepared to take with your investments. Generally speaking, investments that offer a higher than expected level of return will have higher risks associated with them. For more information on switching

investment strategies, see PUT US TO WORK at

www.pssap.gov.au or call us on 1300 725 171.

* The PSS closed to new members on 1 July 2005 and the CSS closed to new members on 1 July 1990.

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Overview and results

The PSSap investment choice options performed well in 2005/06, their first year of existence. Most financial markets rose strongly throughout the financial year and for the one year period ending 30 June 2006, the Trustee Choice default fund returned 14.3% which was well above its long-term target return of 7% per annum.

The other three pre-mixed, diversified options also performed well, with the highest returns achieved by the options with the largest allocation to equities. The Aggressive option led the way, with a return of 16.1%. This was followed by the Balanced option’s 10.2% and the Conservative option’s 7.7%. For those members who have chosen to mix their own option, our single asset class options also performed well, with all but the Fixed Interest and Cash options delivering double digit returns.

The Fixed Interest option’s performance of 2.0%, while low, is well within the expected range of outcomes in any given year. Its performance reflected an environment of rising bond yields, which depress the capital value of fixed interest securities and lower their overall return.

All in all, it has been a very promising first year of life for your new Fund.

Investment objectives

and strategies

The PSSap investment strategy for our pre-mixed options is based on four principles: 1. Taking a global view

Investing only in Australia can limit potential returns. Where fund investment constraints permit, ARIA searches for investment opportunities in both established and emerging international markets. 2. Long-term versus short-term It is important to maintain a balance between short- and long-term investment. Our investment strategy is based on a long-term outlook rather than short-term expectations but we are cognisant of the desirability of reducing short-term volatility. 3. Diversification

Where fund investment constraints permit, your Fund’s investments are spread over all major asset classes to spread risk. 4. Structuring to capture market returns While the overwhelming majority of your Fund’s investments are actively managed by specialist investment managers, these managers generally operate within investment constraints designed to ensure that their returns capture at least most of the return delivered by the market in which they operate.

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News up front 17

Trustee Choice investment option

Investment objective

The Fund’s key investment objective is to maximise the long-term real return within appropriate risk constraints. This is expected to translate to an average real return (ie. after adjustments for inflation) over the long-term of 4.5% per annum after tax and fees. At the same time, the Fund is expected to achieve a positive annual return in at least 24 out of every 30 years.

Investment strategy

The strategic asset allocation of the Trustee Choice option is designed in a way that attempts to maximise the number of different types of investments that tend to perform independently of each other. By embracing the benefits of diversification, the default fund tries to reduce its reliance on equity market returns and therefore provide a smoother pattern of long-term returns.

In April 2006, a minor change was made to the strategic asset allocation of the Trustee Choice investment option. This involved taking 2% from defensive assets (1% from both Australian fixed interest and international fixed interest) and placing the proceeds in growth assets (emerging equity markets).

Fund performance

The Trustee Choice investment option returned 14.3% after tax and fees in 2005/06, its first year of operation. During the same period, the benchmark return before tax and fees was 15.0%.

Trustee Choice asset allocation

Australian Shares (26.3%)

Australian Private Equity Investments (2.9%) International Shares – Hedged (23.4%) International Private Equity Investment (2.2%) Long/Short Equity Funds (5.0%) Property (9.8%) International Bonds (12.5%) Market Neutral Fund (10.0%) General Cash (7.6%)

International Alternatives Investment (0.3%)

This section provides you with information on the investment options,

investment strategies, performance and asset allocation for each

investment option as at 30 June 2006. As the PSSap was established on

1 July 2005 there were no asset allocation details at 30 June 2005.

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Conservative investment option

Investment objective

The Fund’s key investment objective is to maximise the long-term real return within appropriate risk constraints. This is expected to translate to an average real return over the long-term of 3.0% per annum after tax and fees.

Investment strategy

The strategic asset allocation of the Conservative investment option is designed to maximise the benefits of diversification within the constraints of having no more than 30% exposure to growth assets and having no exposure to market neutral and long/short equity strategies considered inappropriate for a conservative strategy.

Fund performance

The Conservative investment option returned 7.7% after tax and fees in 2005/06, its first year of operation. During the same period, the benchmark return before tax and fees was 8.1%.

Balanced (50/50) investment option

Investment objective

Investment strategy

The strategic asset allocation of the

Balanced 50/50 investment option is designed to maximise the benefits of diversification within the constraint of having a 50/50 balance between growth and defensive assets.

Fund performance

The Balanced (50/50) investment option returned 10.2% after tax and fees in 2005/06, its first year of operation. During the same period, the benchmark return before tax and fees was 10.9%.

Asset allocation

Australian Private Equity Investments (1.5%) International Shares – Hedged (10.8%) International Private Equity Investment (1.1%) Property (2.9%)

International Bonds (37.3%) General Cash (32.8%)

Asset allocation

Australian Private Equity Investments (1.7%) International Shares – Hedged (15.5%) International Private Equity Investment (1.4%) Long/Short Equity Funds (5.0%) Property (9.8%) International Bonds (27.9%) Market Neutral Fund (9.9%) General Cash (12.0%)

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Aggressive investment option

Investment objective

Investment strategy

The strategic asset allocation of the Aggressive investment option is designed to maximise the benefits of diversification within the constraint of having 90% exposure to growth assets.

Fund performance

The Aggressive investment option returned 16.1% after tax and fees in 2005/06, its first year of operation. During the same period, the benchmark return before tax and fees was 18.9%.

Bonds/Fixed Interest

investment option

Investment objective

The Fund’s key investment objective is, before taxes and fees are deducted from returns, to at least match the return of a composite index of global and Australian fixed interest securities.

Investment strategy

The Fund’s investment managers hold diversified portfolios of fixed and floating interest rate securities issued in the world’s major capital markets. This allows the Fund to capture the returns generated by debt instruments in those markets.

Fund performance

The Bonds/Fixed Interest investment option returned 2.0% after tax and fees in 2005/06, its first year of operation. During the same period, the benchmark return before tax and fees was 2.0%.

Asset allocation

Australian Private Equity Investments (4.0%) International Shares – Hedged (32.4%) International Private Equity Investment (3.2%) Long/Short Equity Funds (5.0%) Property (9.9%) Market Neutral Fund (8.0%) General Cash (2.0%)

Asset allocation

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Australian Shares investment option

Investment objective

The Fund’s key investment objective is, before taxes and fees are deducted from returns, to at least match the return of the Australian share market.

Investment strategy

The Fund’s investment managers hold diversified portfolios of Australian equities. This allows the Fund to capture the returns generated by Australian equity instruments in those markets.

Fund performance

The Australian Shares investment option returned 22.3% after tax and fees in 2005/06, its first year of operation. During the same period, the benchmark return before tax and fees was 24.7%.

International Shares (unhedged)

investment option

Investment objective

The Fund’s key investment objective is, before taxes and fees are deducted from returns, to at least match the return of the unhedged international share market.

Investment strategy

The Fund’s investment managers hold diversified portfolios of international equities. The foreign currency exposure associated with those holdings is not hedged back into Australian dollars. This allows the Fund to capture the returns generated by equity instruments in those markets and also the returns (both positive and negative) that come from movements in exchange rates.

Fund performance

The International Shares (unhedged) investment option returned 17.8% after tax and fees in 2005/06, its first year of operation. During the same period, the benchmark return

before tax and fees was 21.0%.

Asset allocation

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International Shares (hedged)

investment option

Investment objective

The Fund’s key investment objective is, before taxes and fees are deducted from returns, to at least match the return of the hedged international share market.

Investment strategy

The Fund’s investment managers hold diversified portfolios of international equities. The foreign currency exposure associated with those holdings is, where possible, hedged back into Australian dollars. This allows the Fund to capture the returns generated by equity instruments in those markets while minimising the impact of exchange rate movements on Fund returns.

Fund performance

The International Shares (hedged) investment option returned 15.5% after tax and fees in 2005/06, its first year of operation. During the same period, the benchmark return before tax and fees was 18.1%.

Property investment option

Investment objective

The Fund’s key investment objective is, before taxes and fees are deducted from returns, to at least match the return from the Mercer Direct Property Index.

Investment strategy

The Fund’s investment managers hold diversified portfolios of primarily industrial office and retail properties in Australia. This allows the Fund to capture the returns generated by the Australian property market.

Fund performance

The Property investment option returned 11.7% after tax and fees in 2005/06, its first year of operation. During the same period, the benchmark return before tax and fees was 17.2%.

Asset allocation

International Shares – Hedged (100.0%)

Asset allocation

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Sustainable investment option

Investment objective

The Fund’s key investment objective is, before taxes and fees are deducted from returns, to at least match the return of the Australian share market.

Investment strategy

The Fund’s investment manager holds a diversified portfolio of Australian ‘industries of the future’ which are providing solutions to social and environmental challenges, as well as ‘leaders within traditional sectors’ that exhibit high levels of corporate social responsibility. Companies in which this option is invested are subjected to in-depth financial analysis, in order to identify those offering the potential for superior investment performance.

Fund performance

The Sustainable investment option returned 19.0% after tax and fees in 2005/06, its first year of operation. During the same period, the benchmark return before tax and fees was 23.0%.

Cash investment option

Investment objective

The Fund’s key long-term investment objective is, before taxes and fees are deducted from returns, to at least match the return from the UBS Warburg Australian Bank Bill Return Index.

Investment strategy

The Fund’s investment manager holds a diversified portfolio of cash investments including bank deposits, Australian dollar denominated money market securities and interest rate futures and options traded on the Sydney Futures Exchange. This allows the Fund to capture the returns generated by the Australian cash market.

Fund performance

The Cash investment option returned 4.6% after tax and fees in 2005/06, its first year of operation. During the same period, the benchmark return

before tax and fees was 5.8%.

Asset allocation

Sustainable (100.0%)

Asset allocation

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PSSap investment managers

452 Capital Pty Limited Loomis Sayles & Company LP

AMP Capital Investors Limited Macquarie Investment Management Limited

AMP Life Limited Marathon Asset Management Limited

AXA Rosenberg Investment Management Ltd Marvin & Palmer Associates Inc

Balanced Equity Management Pty Ltd Mesirow Advanced Strategies Inc

Barclays Global Investors Australia Limited MIR Investment Management Limited

BlackRock Financial Management Mondrian Investments Partners Limited

Brandywine Asset Management LLC Orbis Investment Management Limited

Bridgewater Associates, Inc Perpetual Investments

Colonial First State Investments Limited Platinum Asset Management

Concord Capital Limited Rexiter Capital Management Limited

Deutsche Asset Management (Australia) Limited State Street Global Advisors Limited

Eureka Funds Management Company Suncorp Investment Management

Fiduciary Trust Company International Templeton Capital Advisors Ltd

GMO Australia Limited Vanguard Investments Australia Limited

Harris Alternatives LLC Wallara Asset Management

Lend Lease Real Estate Investments Limited Wellington International Management Company Pte Limited

NOTE: The PSSap and PSS are co-invested in a single investment vehicle. Accordingly, the investment managers listed are the investment managers for both the PSSap and PSS.

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How your PSSap super

is valued

Your interest in the PSSap is valued in units. Contributions made to the PSSap and other amounts transferred in are used to buy units in the respective investment option(s) you have chosen.

We keep a record of all units you hold and call this your super account. You can calculate the balance of your account on any business day by multiplying the number of units you hold in each investment option by the relevant ‘sell’ unit price. If you are considering withdrawing your benefit, you can view your current benefit estimate in YOUR ACCOUNT using your secure access number at www.pssap.gov.au or call us for a benefit estimate. Unit prices will fluctuate in line with investment returns (which may be negative). Therefore, the Fund’s net earnings are allocated to your PSSap account through changes in the price of your units. Unit prices will generally be published on our website on each business day. Generally, fees, expenses, costs and taxes are reflected in the unit price. Where fees are payable directly from your account (for example, insurance premiums and switching fees), units will need to be sold to the extent required for payment.

How we calculate unit prices

The unit price for an investment option reflects the total value of assets in the investment option (less fees not deducted directly from your account, expenses and taxes), divided by the number of units issued in the investment option. The costs associated with the purchase or sale of Fund investments are reflected in the unit price for the relevant investment option through a ‘buy-sell spread’. Our calculation of the value of assets in each investment option is generally based on the latest available market value at the end of each business day. Using these available values, the unit price for a given business day will generally be calculated the next business day. For example, the unit price for 1 September (if a business day) will generally be calculated and made available on 2 September (if a business day). If we are unable to determine a unit price for a business day on the following business day due to an unforeseeable event, such as a trading suspension in relevant markets, we will take all reasonable steps to make a determination as soon as possible. For more information, see PUT US TO WORK at www.pssap.gov.au

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PSSap derivatives policy

Investment managers who enter into an Investment Management Agreement with ARIA may use derivative securities such as futures, options and forward exchange contracts to facilitate increases or decreases in the Fund’s exposure to different investment markets. Derivative securities are not used by investment managers for gearing the Fund or any part of the Fund or for placing the Fund in a position where it is short an asset class. Investment mandates granted to investment managers, which permit the use of derivatives, are to reflect the foregoing policy for the Fund as a whole. Where ARIA’s investment managers use derivative securities, ARIA’s internal investment team and/or investment advisors will monitor that such use is consistent with ARIA’s policy, and advise ARIA of any breaches.

If you would like more information call ARIA on (02) 6263 6999.

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In a succession of quick and clever steps, William (Bill) H. Gates brings computer software to a world market.

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In 1973 while at Harvard, Bill Gates developed a version of the

programming language BASIC for the first microcomputer – the MITS

Altair. In a succession of quick and clever steps, Gates and his newly

formed company, Microsoft, brought user-friendly computer software

to a world market.

Now is the time to make sure that all the basic super steps that

you have taken over your career are working for you. You may be

experiencing significant lifestyle changes and a desire to move in new

directions. Your disposable income may increase as debts decrease

and your children become independent. Whatever your situation,

now is the time to review your retirement plan. Check it again.

BASIC

steps

PSSap Super steps: ages 45 – 54

What services does the PSSap offer? See your PSSap features on page 14.

The Contact us section on page 36 shows you the steps to take when accessing all the information you need to help you manage your PSSap super. The PSSap also provides free educational workshops to help you make the most of your super. Go to www.pssap.gov.au for more information.

>

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PSS Board for 2005/06

We are appointed to work in the best interests of members, and

manage PSSap administration, investment strategy and member

communications.

Susan Doyle

Chairman (Independent) Appointed Chairman 28 July 2003 to 27 July 2006, reappointed to 27 July 2009

David Connolly

AM

Trustee (Employer Nominated)

Appointed 19 September 2002 to 18 September 2005,

reappointed to 18 September 2008

Peter Feltham

Trustee (ACTU Nominated)

Appointed 1 July 2005, reappointed to 30 June 2009

From 1 July 2006 the PSS and CSS Boards merged to become the Australian Reward Investment Alliance (ARIA). For more information on ARIA see News up front on page 6.

Winsome Hall

Trustee (ACTU Nominated)

Appointed 1 July 1996,

Des Moore

Trustee (Employer Nominated)

Appointed 9 September 2003 to 8 September 2006,

Biographies can be found

at www.aria.gov.au

The Superannuation Act 1990 (PSS Act) contains full details of the procedure by which the Trustees’ appointments and terminations are made. These are available from

www.pssap.gov.au. The Trustees manage the PSSap in accordance with the law and relevant regulatory requirements. All Trustees are appointed in writing by the Minister for Finance and Administration in accordance with the PSS Act. The PSS Board (now the Australian Reward Investment Alliance (ARIA)) and individual Trustees are covered by indemnity insurance to protect themselves and the PSSap from losses arising from claims against them in certain circumstances. To date there has never been a claim against ARIA or a Trustee that has resulted in the loss of members’ monies, nor have any regulatory penalties been imposed.

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If you do have a complaint, you can be sure we’ll step

up to deal with it as quickly as possible.

To register your complaint

We want you to be completely satisfied with our service, but if you feel you need to make a complaint just call us on 1300 725 171. If you are not satisfied with the response, ask to speak to a supervisor. If you still feel the issue has not been explained or resolved to your satisfaction, ask to be transferred to, or contact the Complaints Officer directly: Email [email protected] Phone 02 6272 9081 Fax 02 6272 9802 Post

The PSSap Complaints Officer PO Box 22

BELCONNEN ACT 2616

We also have a form to help people who have difficulty with the English language to register a complaint. You can get one of these by calling the Complaints Officer.

If you’re still not satisfied

The Superannuation Complaints Tribunal (SCT) is an independent arbitrator set up by the Australian Government to resolve members’ complaints. You can lodge a complaint with the SCT free of charge if you are dissatisfied with our response or we cannot resolve your situation within 90 days. Email [email protected] Web www.sct.gov.au Phone 1300 780 808 Fax 03 8635 5588 Post

Superannuation Complaints Tribunal Locked Bag 3060 GPO

MELBOURNE VIC 3001

Handling complaints

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The Beatles stepping off onto English soil in 1964 after completing their first and only Australian tour.

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The Beatles’ story began in Liverpool – 1950s England – with four

unknown busking teenagers searching for new sounds and chords

on second hand guitars and a drum kit. Within six years John Lennon,

Paul McCartney, George Harrison and Ringo Starr had become the

most famous popular musicians in the world laying the groundwork

for the rock culture of the 1960s and beyond. Now that’s a big step.

It’s all about timing. There are a number of options available to you

when you reach minimum retirement age. You can start enjoying life

after work, you can continue to work full-time, or you can ease into

your retirement by reducing your working hours. Make sure you can

step into retirement with style.

Step off in style.

Yeah! Yeah! Yeah!

PSSap Super steps: age 55+

What services does the PSSap offer?

See your PSSap features on page 14.

The Contact us section on page 36 shows you the steps to take when accessing all the information you need to help you manage your PSSap super. The PSSap also provides free educational workshops to help you make the most of your super. Go to www.pssap.gov.au for more information.

>

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Financial statements

The PSSap unaudited accounts for 2005/06.

2006 $’000 Operating statement for the year ended 30 June 2006

Revenue

Interest on cash at bank 297

Changes in net market value of investments 2,346

Employer contributions 66,202

Member contributions 2,044

Transfer from other funds 53,233

Government co-contributions 42

Insurance proceeds 101

Total revenue 124,265

Insurance premium expense (3,151)

Income tax expense (10,178)

Benefi ts paid (337)

Liability for accrued benefi ts at the end of the year 110,599

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33

News up front

2006 $’000 Assets and liabilities as at 30 June 2006

Assets Investments 104,168 Cash at bank 17,071 Other assets 132 Total assets 121,371 Benefi ts payable (5) Sundry creditors (520)

Provision for tax (10,247)

Net assets available to pay benefi ts 110,599

Notes

1. Expenses relating to member administration are borne by the Fund administrator out of fees received from participating employers. 2. Expenses relating to investment management are borne by the underlying investments.

These are the PSSap unaudited accounts for 2005/06. If you’d like to see a copy of the PSSap audited accounts for this or any other year and the related auditors’ reports, please see our ANNUAL REPORT TO PARLIAMENT (published in October) at www.pssap.gov.au, email [email protected], or call us on 1300 725 171, or write to PSSap, PO Box 22, BELCONNEN ACT 2616.

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Matt Groening with a life-size cut-out of his character Homer Simpson.

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Stepping

into prime-time

Matt Groening changed family television forever when he

brought step by step animation back to prime-time with the

immortal nuclear family,

The Simpsons

. While Groening may

have aged creating the longest running prime-time animated

show in television’s history, none of his characters has.

People in the real world do age, and their circumstances do

change over time. Understanding the importance of step by

step planning for retirement from an early age is crucial. Sound

financial management and saving practices should be passed

on to our children – essential life skills that will lead to greater

stability, independence and happiness.

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PSSap Super steps: Your family

Consider:

Showing your kids how to set money aside from their pocket money to save for something they might want.

Setting up a bank or credit union account for them so they can watch their savings grow over time, and learn about interest.

Useful sources of information

www.kids.nsw.gov.au – a range of online resources and publications for kids provided by the NSW Commission for Children and Young People.

TO THE MAX – a comic-book guide that deals with everyday fi nancial issues faced by many young people, as well as advice on where to go to for help if young people fall into fi nancial diffi culty, produced by the Australian Securities and Investments Commission. Go to www.fi do.gov.au MONEY STUFF – an online consumers guide for youth (including useful information

on using credit) provided by the NSW Offi ce of Fair Trading. Go to www.moneystuff.net.au

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Contact us

Making decisions about your super? We can get you off to a good

start with accurate information about the PSSap and your account.

www.pssap.gov.au

PSSap AFSL: 238069 ABN: 65 127 917 725 RSE: R1004601 ARIA AFSL: 238069 ABN: 48 882 817 243 RSE: L0001397