It has been one of those years that follow an exceptionally good year. Never as flattering, and somewhat flattened. But that is how investing is – some of the previous year's gains are clawed back. Despite a headline result that pales against the 05/06 year's, the reality is that we cannot be dissatisfied with what we have achieved in terms of consolidating and preserving previous gains. In my last report, I predicted as follows: "I would expect 2007 returns to be considerably lower. Past experience would indicate that they might be in the range of 4-8% after tax. The international equities market should give good returns and these will be enhanced if the New Zealand Dollar falls to a lower level. International Bonds should give adequate returns due to low inflation and the possibility of dropping long-term interest rates. New Zealand bonds may struggle especially if interest rates are increased to dampen inflation." Like everyone else's, it seems, my predictions of exchange rate movements were off the mark, but the rest of it was close to the mark. We know that a result like 2005/06 was unduly flattering. The other side of the coin is that this year's result is unduly flattened. The real performance is somewhere in between. It's for this very reason that results are more fairly expressed in terms of the last five years' average, not as individual years. The last year for the Seafarers Retirement Fund is one that has thrown up a number of challenges for the trustees both in the short and long term. These include areas such as taxation, KiwiSaver, administration managers, member issues, fund performance and investment benchmarks. All were dealt with by the trustees using their skills or in conjunction with professional advisors. Some of these issues have no obvious answers and the trustees have to step back and identify the issues and our goal, then make the necessary decisions.

KiwiSaver Up until mid-May, the trustees had decided that the benefits of KiwiSaver were not enough for the Seafarers Retirement Fund to go into it. The reasons included: • The cost. Some Funds we know had spent as much as $100,000 on preparing amendments to a section of their Trust Deed so it would comply with the KiwiSaver requirements for members to receive these benefits. • A lack of readily identifiable member benefits that could be gained. • Finally, we did not want to spend a great deal of time and money and have no members demanding to join a KiwiSaver section of the scheme. The recent changes to the KiwiSaver, announced in the 17th May 2007 Budget, have changed our views. The benefits have been considerably enhanced making it a lot harder to consider not joining. The main benefit is a tax credit to most members of $20 per week while they are making contributions. Members still have to realise that all contributions including member, company and taxation credits, will be locked in until 65 years of age. How the Seafarers Retirement Fund addresses the KiwiSaver issue will be discussed at the next trustees’ meeting and any decision will be conveyed to members.

Investments The returns this year of 4.29% after tax were significantly below the stellar 17.5% returns of 2005/06. Investment markets tend to do this, as they are driven by investor sentiment, resulting in assets becoming over-valued then under-valued. This is why our investment objective is set for a five-year time frame. It is to achieve a real rate of 3% per annum over this period. We have achieved a real return of 6.0% for the last 5 years, which exceeds the objective by 0.46%. We are now entering into a new taxation regime for superannuation schemes with profits made from increases in the actual value of New Zealand and Australian shares now being tax free. In the past, these were taxable. We now only pay tax on their dividends. However, for all other shares held by the Seafarers Retirement Fund, we now pay tax on 5% of their value at the start of the year. This means that there is now an advantage in having active management of these shares as against having an index fund which we had in the past. The taxation of other asset classes – cash, international and New Zealand bonds – will remain as at present. As a result of all of these taxation changes, the trustees are going to review both the asset mix and the amount in each asset class and this could result in a rebalancing of our investments in the near future. Two other issues to be discussed in this review are the role of New Zealand Bonds in a portfolio, and a decision on whether we should purchase a property directly for the fund.

Trustee Meetings In the course of every year, the trustees have to deal with numerous issues and these can normally be categorised into four areas: member, investment, administration and legislation. In the member area, we have had to deal with the death of a member for whom we had no contact details. We also had to deal with a large list of contributions received from employers for people who had not yet joined the Seafarers Retirement Fund. These two issues show how important it is for contact addresses to be updated and for applications to join being completed/returned promptly. We meet with each of our three investment managers approximately twice a year. At these meetings, we discuss investment performance against the agreed benchmarks, future outlooks, the economic environment, and any issues they or the trustees may have. Jacques Martin, the Fund's administration managers for the last 20 years, gave the trustees notice of termination of the contract on 31 March 2007. A number of alternatives were considered and, after evaluation, AON were appointed. They officially started on 1 June 2007, so all communications in the future will have to be with them. We have had to consider all the new legislation covering taxation and such things as PIEs (Portfolio Investment Entities) and Kiwisaver. We need to assess what impacts these will have on the Seafarers Retirement Fund.

Outlook for 2008 The international outlook for shares is positive as the major economies are showing growth. However, most of the returns will depend on what happens to the value of the New Zealand dollar. If it decreases in value from 75 cents to the USA dollar, this will tend to enhance returns here. The Australasian share outlook is more subdued due to inflation concerns and rising interest rates. International bonds will continue to deliver adequate returns while New Zealand bonds will continue their poor performance due to rising interest rates causing capital losses and reduced returns.

2006 Annual Report Award Our last year’s annual report won the ASFONZ (Association of Superannuation Funds of New Zealand) award for small schemes. This makes it four significant awards in six years so the trustees were very proud of this and so should members be. The awards are for communication of investment and other statutory information to members. The judges provide us with information on where we can improve and areas where we have done well.

Thank you The running of the Seafarers Retirement Fund is a team effort with many involved. The contribution made by Jacques Martin will be missed and so will both Maria Kane and Nicola Daniel. Thanks to all our investment managers, Chris Voghterr, Ross Bradding and Russell Garrett, for their work and to Bernie Higgins and John Hammond from AON. A special thanks to my fellow trustees, Andro, Barry, David, Garry and John, for all the work they have done at meetings and for their input on various other issues as they have arisen. Should any member have any comments or questions, I can be reached using the directory details click here.

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