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					                                                            Quality Patient-Centred Care Through Teamwork




        For discussion                                                          AOM-P490
        on 31.5.2007

                                       Hospital Authority

                           Hospital Authority Provident Fund Scheme
                                      Governance Report

        Purpose

                    The purpose of this paper is to report on the current operation of the
        Hospital Authority Provident Fund Scheme (HAPFS) and seek members’ comment
        and advice on the way forward.

        Background

        2.           The HAPFS is a defined contribution scheme, which provides
        benefits to the employees of the Hospital Authority (HA). It is registered under
        section 18 of the Hong Kong Occupational Retirement Schemes Ordinance (ORSO)
        and is an exempted scheme under the Mandatory Provident Fund Schemes
        Ordinance (MPFSO).

        3.            HAPFS was historically administered by the Provident Scheme
        Trustees, with the assistance of HA executives and external service providers. In
        2001, a small, separate office was set up by the Trustees (Scheme Office) to
        strengthen supervision of the Scheme’s investments. All non-investment related
        affairs of the Scheme still resided with the HA executives. The Scheme was
        restructured in 2003 to allow for the introduction of Member Choice. The
        Scheme’s operations became more complex after the restructuring, and the
        Scheme Office became increasingly involved with the administrative and
        operational sides of the Scheme. In April 2006, the Scheme Office completely
        took over the Scheme’s administrative and operational functions from the HA
        executives, and has been operating independently under the supervision and
        direction of the Trustees. In view of such independence, it was decided that for
        good governance’s sake, the Trustees shall report to the HA Board regularly, at
        least on an annual basis.

        Scheme Membership and Assets

        4.           The number of members in the Scheme at 31 March 2007 was
        36,660. As the Scheme is only offered to permanent employees of the HA, its
        membership declined steadily for a number of years. This decline has recently
        been halted as the HA started to convert some contract employees to permanent
-----
        employees (Annex 1 - Membership Trend).
                                                -   2   -

          5.         The Scheme’s assets amounted to HK$34.5 billion at 31 March
          2007. The total provident fund contribution made by the HA to the Scheme was
          around HK$1.8 billion in the previous Scheme year whilst withdrawal from the
          Scheme due to retirement and resignation was around HK$1 billion.

          Trustees

          6.           Trustees are appointed by the HA for a two-year term. The Board of
          Trustees currently has 11 members, comprising HA Members, HA employee
          representatives, independent members, and a government representative.

          7.            The Trustees are responsible for the overall direction and control of
          the Scheme, and the establishment of policies for its orderly operation, under the
          provisions of the Trust Deed and Rules. Whilst the Trustees may delegate their
          duties to staff and other service providers, they strive to ensure that proper
          controls are in place to adequately safeguard the assets of the Scheme and that
          the Scheme’s objective is achieved.

          8.           Trustees meet six times a year to deliberate the affairs of the Scheme.
          Additionally, ad-hoc committees are formed from time to time to consider special
          topics or projects. These committees meet as and when required (Attendance
-----     rates of Trustee meetings from 2003/04 to 2006/07 can be found in Annex 2).

          Member Choice

          9.           The Scheme currently offers 5 investment choices (Lifestyle Funds):

                •      Growth Fund;
                •      Balanced Fund;
                •      Conservative Fund;
                •      Capital Guaranteed Fund; and
                •      HSBC Global Money Fund (Hong Kong Dollar) (only open to members
                       nearing retirement, i.e. aged 55 or above or within 5 years from
                       normal retirement).

  -----   (Annex 3 - Distribution of assets among Lifestyle Funds at 31 March 2007)

          10.           Except for members who have chosen the HSBC Global Money Fund
          (Hong Kong Dollar) or the Capital Guaranteed Fund, they are allowed to switch
          funds once every Scheme year. A switch can take place at the end of any month,
          at the choice of the member. Switching instructions can be given over the
          internet, interactively over the phone, or to a representative at a call centre.
          Members can also access their account balances, change personal details, and
          check latest Fund prices via these channels. The call centre is also an important
          resource in answering members’ other queries.
                                               -   3   -

        Investment Policy

        11.           The overall objective of the investment strategy adopted by the
        Trustees has been to provide a balanced selection of lifestyle funds to suit
        members’ individual risk-return profiles, financial circumstances, risk tolerance,
        and investment objectives, and to achieve a rate of return that exceeds inflation in
        the long run.

        12.            The lifestyle funds offered to members each has a clearly articulated
        investment objective (Please see Table 1 of Annex 4 for these investment
        objectives). In developing a strategy for each lifestyle fund, a risk target range is
        first established. Trustees then determine the equity, bonds, cash, and foreign
        currency proportions of each lifestyle fund that reflect the desired risk
        characteristic and return objective of the fund.

        13.          The allocation of the equity proportion among global markets is then
        determined, based on the markets’ capitalizations with a 20% home bias to the
        Hong Kong market. The allocation of the bond proportion among different types
        of fixed income instruments in the global bond market is made in accordance with
        advice from an investment consultant. A small allocation to hedge funds is
        present in selected lifestyle funds as an alternative to bonds.

        14.           The benchmark asset allocations of the lifestyle funds at 31 March
-----   2007 as well as their respective risk targets are set out in Table 2 of Annex 4.
        Trustees review the Scheme’s investment policy and the objectives of all the
        lifestyle funds annually. Changes to the benchmark asset allocation, and addition
        or deletion of asset classes are also considered during this review.

        Investment Management

        15.          Management of the Scheme’s assets is outsourced to external
        investment managers. The Scheme adopts a “specialist mandate” approach,
        meaning that each manager is hired to manage a specific asset class e.g. Hong
        Kong stocks. Multiple specialist managers with different styles are employed to
        diversify manager risks.

        16.         Trustees typically select investment managers with the assistance of
        an investment consultant. The HAPFS Manager Selection Process is set out in
        Annex 5(a).

        17.           Investment managers are formally reviewed once every six months to
        evaluate their investment performance as well as the consistency of their
        investment style and methodologies against their stated philosophies.
        Compliance of the managers with their pre-agreed guidelines and restrictions is
        monitored on an on-going basis. The Scheme employs a rating system (from A to
        D) for formal performance review of the investment managers. Managers rated D
        are considered by Trustees for termination.
                                                -   4   -


          18.        Annex 5(b) contains a full list of investment managers employed by
          HAPFS at 31 March 2007 and the ratings they achieved during the last Scheme
          year. The average manager turnover rate of HAPFS is 10% for the past three
          years.

          Investment Performance and Risk

          19.           Thanks to the benign investment environment since the introduction
          of Member Choice, HAPFS’ lifestyle funds delivered strong investment returns
          during this period, with risks running below ranges targeted when the funds’ asset
  -----   allocations were set (details of fund returns and risks are contained in Annex 6).

          Other External Service Providers

          20.          The Scheme also out-sources some non investment-related services
          to external providers. The main providers are:

                •      The Custodian

                       The Custodian safe keeps all of the Scheme’s investment assets and
                       is responsible for the settlement of all securities and currency trading
                       initiated by the Scheme’s investment managers. The Scheme
                       employs Northern Trust as its global master Custodian.

                •      The Administrator

                       All responsibilities for the Scheme’s member administration have
                       been delegated to the Administrator, HSBC Institutional Trust
                       Services. The Administrator also maintains the accounting records
                       of the Scheme and prepares the Scheme’s quarterly and annual
                       accounts.

                •      Member Servicing Provider

                       The Scheme employs INVESCO Hong Kong to provide members with
                       a dedicated website, call centre hotlines, and an Interactive Voice
                       Response System to accept members’ fund switching instructions
                       and handle members’ enquiries regarding account balances, fund
                       prices and performance, etc.

          21.         These service providers are regularly reviewed to ensure satisfactory
-----     performance. Please see Annex 7 for the latest review outcome.
                                            -   5   -

        Member Communication

        22.         In addition to daily communication through the member servicing
        platform operated by INVESCO, the Scheme regularly communicates to the
        members through the following channels:

                    Quarterly information update
                    Staff representative meeting
                    Open forum
                    Annual report

-----   More detailed descriptions of these channels are contained in Annex 8.

        Scheme Office

        23.          The Scheme Office assists the Trustees in the discharge of their
        duties under the Trust Deed. Its scope of work principally involves:

              (a)   Investments of the Scheme’s assets

                    It advises Trustees, with the assistance of investment consultants
                    where appropriate, on asset allocation matters and investment
                    manager selection. It is also responsible for administering members’
                    switches of Lifestyle Funds, the allocation of monthly provident fund
                    contributions from the HA to investment managers in accordance
                    with the strategic asset allocations and rebalancing policy
                    determined by Trustees, and the management of the Scheme’s cash
                    flows to meet retirement benefit and expense payments. It works
                    closely with the Custodian to ensure smooth investment operations
                    and that accurate investment records are maintained. Monthly Fund
                    prices are calculated by the Scheme Office based on the Custodian’s
                    records.

              (b)   Member and Scheme Records

                    The Scheme Office coordinates with the Administrator, the HA HR
                    and Finance departments, and the Member Servicing Provider to
                    ensure proper maintenance of members’ records and payment of
                    retirement benefits. It also works closely with the Administrator on
                    the maintenance of the Scheme’s accounts, which are audited
                    annually by an Auditor appointed by the HA (currently
                    PricewaterhouseCoopers), who also provides, as part of the annual
                    audit, a report to the Trustees on the Scheme Office’s system of
                    internal controls.
                                       -   6   -

        (c)   Monitoring of all service providers

              The Scheme Office is responsible for the monitoring of activities and
              performances of all the service providers engaged by the Scheme.

        (d)   Member Services and Communication

              The Scheme Office produces all the publications for member
              communication. It also works with the Member Servicing Provider
              and HA HR in holding forums for members as well as answering
              members’ complaints and queries. Senior executives of the Office
              attend regular meetings of the Staff Representative Committee to
              brief staff representatives on investment performance and other
              notable developments, and to listen to members’ views on
              HAPFS-related issues.

        (e)   Overall risk management

              The Scheme office assists the Trustees in overall risk management,
              not only with respect to investments of the Scheme, but in all
              respects of the Scheme’s affairs to ensure the safety of the
              Scheme’s assets.

              The Scheme Office has developed a comprehensive Policy and
              Procedures Manual and adopted it for its operations since November
              2006. The Manual has been reviewed extensively by external
              consultants (PricewaterhouseCoopers, Horwarth Risk Advisory
              Services Ltd.) and the HA’s Group Internal Audit department.

              Trustees have also engaged HA’s Group Internal Audit department,
              with the support of Horwarth, to perform internal audit and quarterly
              compliance reviews of the Scheme Office’s operations.
              Satisfactory reports from these internal audit exercises provide
              Trustees with the comfort that the Scheme Office has an adequate
              internal control framework in place and is in compliance with all of
              the Trustees’ instructions and administrative policies, as well as
              relevant regulatory requirements.

Costs

24.         The Trustees and the Scheme executives carefully manage and
control Scheme expenses and have successfully kept HAPFS’ expense ratio
(0.42%p.a. for fiscal year 2005-2006) one of the lowest in the territory amongst
ORSO Schemes (Please see Annex 9 for cost details).
                                    -   7   -

Development of new member services

25.          The Trustees wish to offer members the option to make voluntary
contributions into the Scheme, encouraging members to save more for their
retirement. It is envisaged that this option may become available to members in
late 2008 or early 2009 when HA’s new payroll system is operational.

Governance plan - the way forward

26.          This first Governance Report is aimed at familiarizing HA members
with the Provident Fund Scheme. In the future, more objective measures should
be established to evaluate the success of the Scheme. The Trustees look
forward to working with the HA, perhaps with the assistance of an independent
consultant, to develop a Governance Plan and an Annual Plan to form the
framework for regular accountability reporting.

Advice Sought

27.          Members are invited to note the current operation of the HAPFS as
described in this paper and comment on the way forward.


Hospital Authority
AOM\PAPER\490
17 May 2007
                                        -     8   -

                                                                    Annex 1 to AOM-P490




                            Membership Trend
                 (from end-March 2003 to end-March 2007)




                42000
                41000
                40000
No of Members




                39000
                          41,647




                38000
                                     38,881



                                                      38,099
                37000

                                                                 37,361



                                                                            36,660
                36000
                35000
                34000
                        2003       2004           2005         2006       2007
                                      As at end-March
                                                                 -            9       -

                                                                                                                       Annex 2 to AOM-P490



                          Average Attendance Rate at Trustee Meetings


                          80%
Average attendance rate




                          60%




                                                                                                77.45%
                                                                     74.24%




                                                                                                                              68.18%
                                             54.44%

                          40%


                          20%


                           0%
                                2003/04                   2004/05                          2005/06                         2006/07




                          Average Attendance Rate by Trustee Category

                    100

                          80
                                                                                                                                       2003/04
                          60                                                                                                           2004/05
%
                          40                                                                                                           2005/06
                                                                                                                                       2006/07
                          20

                          0
                                HA Members


                                                      Employee



                                                                                  Independent




                                                                                                         Representatives
                                                      Trustees



                                                                                    Members


                                                                                                          Government
                         -   10   -

                                             Annex 3 to AOM-P490



      Distribution of Assets Among Lifestyle Funds
                 (As at end-March 2007)



                1%                           Balanced Fund


                                             Capital Guaranteed
                                       36%   Fund

42%                                          Conservative Fund


                                             Growth Fund

                                  4%
                                             HSBC Global
                   17%                       Money Fund
                                          -   11   -

                                                                  Annex 4 to AOM-P490


Table 1 -        Investment Objectives of Lifestyle Funds


   Lifestyle Fund          Risk Profile                        Primary Objective
Growth                         Higher          Achieve long-run inflation adjusted
                                               growth of capital
Balanced                       Medium          Preserve purchasing power of capital in
                                               the long-run
Conservative                   Lower           Preserve long-term capital
Capital Guaranteed             Minimal         Avoid any loss of capital over the Fund’s
                                               6-year term
HSBC Global Money              Minimal         Preserve capital for members aged 55
Fund (HK Dollar)                               years old or 5 years from normal
                                               retirement age


Table 2 - Benchmark Asset Allocation of Lifestyle Funds (as at end-March
2007)
                                                                      (%)
                                 Growth            Balanced        Conservative      Capital
                                                                                   Guaranteed
HK Equities                       13.90                 9.90           4.90          10.35
US Equities                       27.70                19.70           9.80          23.05
European Equities                 16.60                11.80           5.90          11.40
Japanese Equities                  5.70                 4.10           2.00           3.45
Other Asian Equities               1.50                 1.10           0.50           1.15
Emerging Market Equities           4.20                 3.00           1.50           2.30
Private Equity / Cash              0.40                 0.40           0.40           0.00
Reserve
Total equities                    70.00                50.00          25.00          51.70
Global Fixed Income               25.00                45.00          45.00          48.30
Fund of Hedge Funds                5.00                 5.00           5.00           0.00
Cash                               0.00                 0.00          25.00           0.00
TOTAL                            100.00                100.00        100.00         100.00
Target Volatility*             9-11% p.a.          7-9% p.a.        5-7% p.a.


* Volatility is measured in terms of the standard deviation of investment
returns.
                                   -   12   -



                                                    Annex 5(a) to AOM-P490


                      Selection of Investment Managers

1.    Preparation of a long list

The selection of an investment manager begins with a long list of
candidates with capability in that asset class and in the style that is required.
If HAPFS internal resources are not sufficient to provide the long list,
assistance of an external consultant will be sought.


2.    Initial Screening

The long list of candidates will be screened to exclude firms that are not
suitable to manage the Scheme’s assets, e.g. an investment firm whose
existing asset under management (AUM) is too small such that the
Scheme’s mandate would form a significant portion of the investment
firm’s AUM.


3.    Short-listing

Contact will be made with each suitable long-listed manager, e.g. through
conference calls or face-to-face meetings depending on the location of the
manager, to understand the manager’s investment philosophy, team and
processes. Initial assessment will be made based on each manager’s
personnel team, processes and performance, to arrive at a short list of
candidates. Where possible, on-site due diligence will be carried out on the
short-listed managers.


4.    Presentation to Trustees

Prior to presentations by the managers to the Trustees, the Trustees would
have been advised by the investment team at HAPFS, the long list of
managers, and the short listed. It is the ultimate decision of the Trustees
to determine whether the short listed candidates are appropriate, and at any
stage, the Trustees can include a candidate from the long list if they desire.

After the due diligence process, a list of candidates will normally be invited
to make final presentations to the Trustees. The above process is carried
out with the help of the consultant if one is engaged for the exercise. The
final decision on the choice of investment managers rests with the
Trustees.
                                          -   13    -



                                                               Annex 5(b) to AOM-P490


                             List of Investment Managers


                                (as at end-March 2007)

Hong Kong Equities                     Legg Mason Intenational Equities (Hong Kong ) Limited       D
                                       Schroder Investment Management (Hong Kong) Limited          A
                                       Llyod George Investment Management (Bermuda) Ltd           New
                                       Value Partners Ltd                                         New

Asia Pacific Equities                  Schroder Investment Management (Hong Kong) Limited         B

Japanese Equities                      Nomura Asset Management Hong Kong Limited                  B

US Equities                            Legg Mason Capital Management Incorporation                A
                                       Wellington Management Company, LLP                         A
                                       TCW Asset Management Company                               B

European Equities                      Northern Trust Global Investments (Europe) Limited         B
                                       Capital International Research & Management Incoporation   B

                                       RCM Asia Pacific Ltd (formerly known as Allianz Global
Emerging Market Equities                                                                          B
                                       Asset management HK Ltd)

Private Equities                       Goldman Sachs Capital Partners                             N/A

Fixed Income Global                    Pacific Investment Management Company, LLC (PIMCO)          A
                                       Goldman Sachs Asset Management International                B
                                       Brandywine Global Investment Management , LLC               A
                                       Colchester Global Investors Ltd.                           New
                                       Mackay Shields, LLC                                         A

Overlay- Currency                      Pareto Investment Management Limited                       B

Fund of Hedged Funds                   Quellos Institutional Partners Limited                     B
                                       FRM Investment Management Limited                          B

Conservative Fund's cash               TCW Asset Management Company                                B
                                       Invesco HK Ltd                                              B
                                       State Street Global Advisors Limited                       N/A

Global Money Fund (Hong Kong Dollar)   HSBC Investments (Hong Kong) limited                       N/A
                                                                      -      14           -

                                                                                                                   Annex 6 to AOM-P490


                                                      Fund Returns and Risks


Performance of Lifestyle Funds

Yearly Return
                                               Mar-05                                          Mar-06                                 Mar-07
                                        Fund *     Benchmark                         Fund *        Benchmark                    Fund *   Benchmark
Growth                                  10.29%        9.70%                          16.24%           16.01%                    14.85%     15.99%
Balanced                                 8.86%        8.21%                          12.30%           11.93%                    12.49%     13.47%
Conservative                             5.95%        5.45%                          7.56%            7.42%                     9.25%       9.70%
Capital Guaranteed                       7.93%        8.01%                          11.86%           11.65%                    11.51%     13.31%
HSBC Global Money                        0.34%        0.03%                          2.89%            1.62%                     4.10%       2.43%

Since 1 October 2003
                                               Mar-05                                          Mar-06                                 Mar-07
                                        Fund *     Benchmark                         Fund *        Benchmark                    Fund *   Benchmark
Growth                                  25.49%       24.68%                          45.86%           44.65%                    67.52%     67.78%
Balanced                                20.71%       19.74%                          35.56%           34.02%                    52.49%     52.08%
Conservative                            12.62%       11.89%                          21.13%           20.19%                    32.33%     31.85%
Capital Guaranteed                      19.45%       19.87%                          33.61%           33.83%                    48.99%     51.64%
HSBC Global Money                        0.54%        0.03%                          3.44%            1.65%                     7.69%       4.13%

* Investment expenses are being borne by the Funds to which they relate. Therefore, the actual returns of the Funds were net of all transaction costs,
 management fees and other operating expenses, whereas the benchmark returns were gross returns, as no costs were included in the benchmark
indices.




Performance Since October 03
  70%
                                                                                                                                                        67.52%


  60%


                                                                                                                                                        52.49%
  50%                                                                                                                                                   48.99%


  40%


                                                                                                                                                        32.33%
  30%



  20%



  10%
                                                                                                                                                        7.69%
                                                                                                                                                        5.38%

   0%
                           4




                                                                 5




                                                                                                              6




                                                                                                                                                    7
                                        4




                                                                                 5




                                                                                                                          6
        3



                 3




                                                4



                                                        4




                                                                                          5



                                                                                                  5




                                                                                                                                   6



                                                                                                                                           6
                           -0



                                   -0




                                                                 -0



                                                                            -0




                                                                                                              -0



                                                                                                                     -0




                                                                                                                                                   -0
         0



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                                                                                                                                        D




                                              Growth Fund                                              Balanced Fund
                                              Conservative Fund                                        Capital Guarantee Fund
                                              HSBC Global Money Fund (HKD)                             HK CPI (B)
                         20                                                                              20                                                                            20
                           03                                                                              03                                                                            03




                                  2
                                      3
                                          4
                                              5
                                                                                                                                                                                                7
                                                                                                                                                                                                    8
                                                                                                                                                                                                        9
                                                                                                                                                                                                            10
                                                                                                                                                                                                                 11
                                                                                                                                                                                                                      12




                             1                                                                                                                                                             1




                                                                                                                  5
                                                                                                                      6
                                                                                                                          7
                                                                                                                              8
                                                                                                                                  9
                         20 0                                                                                1                                                                         20 0
                                                                                                         20 0
                           03                                                                              03                                                                            03
                             1                                                                               12                                                                            1
                         20 2                                                                            20                                                                            20 2
                           04                                                                              04                                                                            04
                             02                                                                              0                                                                             02
                                                                                                                                                                                                                                                       Charts on Total Risk




                         20                                                                              20 2                                                                          20
                           04                                                                              04                                                                            04
                             0                                                                               04                                                                            0
                         20 4                                                                            20                                                                            20 4
                           04                                                                              04                                                                            04
                         20
                             06                                                                              0                                                                         20
                                                                                                                                                                                           06
                                                                                                         20 6
                           04                                                                              04                                                                            04
                             0                                                                               08                                                                            0
                         20 8                                                                            20                                                                            20 8
                           04                                                                              04                                                                            04
                             1                                                                                                                                                             1
                         20 0                                                                            20 10                                                                         20 0
                           04                                                                              04                                                                            04
                             12                                                                              1                                                                             12
                         20                                                                              20 2                                                                          20
                                                                                                                                                                    Growth Fund
                           05                                                                              05                                                                            05




                                                                                    Balanced Fund
                             0                                                                                                                                                             0




Conservative Fund
                                                                                                             02
                         20 2                                                                            20                                                                            20 2
                                                                                                                                                                                                                                                                              -




                           05                                                                              05                                                                            05
                             04                                                                              0                                                                             04
                         20                                                                              20 4                                                                          20
                           05                                                                              05                                                                            05
                             0                                                                               06                                                                            0
                         20 6                                                                            20                                                                            20 6
                                                                                                                                                                                                                                                                              15




                           05                                                                              05                                                                            05
                             0                                                                               0                                                                             0
                         20 8                                                                            20 8                                                                          20 8
                                                                                                                                                                                                                                                                              -




                           05                                                                              05                                                                            05
                             10                                                                              10                                                                            10
                         20                                                                              20                                                                            20
                           05                                                                              05                                                                            05
                             1                                                                                                                                                             1
                         20 2                                                                            20 12                                                                         20 2
                                                                                                                                                                                                                           Total Risk of Growth Fund




                           06                                                                              06                                                                            06
                                                                                                             0
                                                                                                                                      Total Risk of Balanced Fund




                             02                                                                                                                                                            02
                         20                                                                              20 2                                                                          20




                                                  Total Risk of Conservative Fund
                           06                                                                              06                                                                            06
                             0                                                                               04                                                                            0
                         20 4                                                                            20                                                                            20 4
                           06                                                                              06                                                                            06
                             0                                                                               0                                                                             0
                         20 6                                                                            20 6                                                                          20 6
                           06                                                                              06                                                                            06
                             08                                                                              08                                                                            08
                         20                                                                              20                                                                            20
                           06                                                                              06                                                                            06
                             1                                                                               1                                                                             1
                                                                                                                                                                    Growth Benchmark




                         20 0                                                                            20 0                                                                          20 0




                                                                                    Balanced Benchmark




Conservative Benchmark
                           06                                                                              06                                                                            06
                             12                                                                              12                                                                            12
                         20                                                                              20                                                                            20
                           07                                                                              07                                                                            07
                             02                                                                              02                                                                            02
                                                                  20
                                                                    03




                                                                            5
                                                                                6
                                                                                    7
                                                                                        8
                                                                                            9




                                                                  20 10
                                                                    03
                                                                  20 12
                                                                    04
                                                                  20 02
                                                                    04
                                                                  20 04
                                                                    04
                                                                  20 06
                                                                    04
                                                                  20 08
                                                                    04
                                                                  20 10
                                                                    04
                                                                  20 12
                                                                    05
                                                                  20 02
                                                                                                                                       -




                                                                    05
                                         Capital Guarantee Fund



                                                                  20 04
                                                                    05
Source: Barra’s multiple-factor model.
                                                                  20 06
                                                                                                                                       16




                                                                    05
                                                                  20 08
                                                                                                                                       -




                                                                    05
                                                                  20 10
                                                                    05
                                                                  20 12
                                                                    06
                                                                  20 02
                                                                    06
                                                                                                Total Risk of Capital Guarantee Fund




                                                                  20 04
                                                                    06
                                                                  20 06
                                                                    06
                                                                  20 08
                                                                    06
                                         CGF Benchmark




                                                                  20 10
                                                                    06
                                                                  20 12
                                                                    07
                                                                       02
                               -   17   -

                                                     Annex 7 to AOM-P490


                 Review of External Service Providers

                 Frequency   Date of           Outcome of Last Review
                 of Review    Last
                             Review

Custodian:       Annually    8 Sep 06 Overall, HAPFS was content to
                                      retain the service of Northern
The Northern                          Trust.
Trust Company
                                            During the review, the HAPFS
                                            office pointed out areas where
                                            services were not considered
                                            satisfactory,    and     raised
                                            concerns about the quality of
                                            local resources. The Custodian
                                            provided assurance that those
                                            concerns would be addressed.

Scheme           Quarterly   13 Mar         Services have been satisfactorily
Administrator:                 07           provided in accordance with
                                            service standards agreed.
HSBC
Institutional
Trust Services
(Asia) Limited

Member           Annually    23 Mar         Services have been satisfactorily
Servicing                      07           provided in accordance with
Provider:                                   service standards agreed.

INVESCO Hong
Kong Limited
                               -    18   -

                                                 Annex 8 to AOM-P490


                  Member Communication Channels

1.   HAPFS Staff Representative Committee (SRC)

     The SRC was set up in 1992 as an informal machinery for staff
     communication and consultation in relation to HAPFS issues. It
     holds four meetings a year, during which senior officers of the
     HAPFS office would brief staff representatives on the performance of
     the Scheme and other notable developments, and to listen to
     members’ feedback on the Scheme. Employee Trustees also attend
     the meetings.

     The HAPFS Governance Review suggests, among other things,
     turning SRC into a formal machinery for staff consultation on HAPFS
     issues and for the election of employees trustees. The terms of
     reference of the Committee are being finalized.

2.   Open Forum

     Around 8 - 10 open forums are organized each year at which
     INVESCO, the member servicing provider, explains to members the
     investment choices, the performance of the lifestyle funds and the
     member services that are available. The forums also provide an
     opportunity for members to raise any questions regarding the
     Scheme.

     In addition, HSBC holds two forums each year for retiring members
     who are eligible to opt for HSBC Global Money Fund (Hong Kong
     dollar).

3.   Quarterly Information Update

     The Quarterly Information Update is a newsletter which provides
     updates on investment performance, asset allocation and currency
     exposure etc. A new section which features issues of topical
     interest to members has been added since the February 2007 issue.

4.   Annual Report

     HAPFS Annual Report is issued in the third quarter of each calendar
     year. It reports important developments and investment matters of
     the Scheme in the preceding Scheme Year, covering topics such as
     investment performance, investment strategy and supervision,
     administration and the Scheme’s accounts etc.
                                -   19   -

5.   Member servicing platform provided by INVESCO

     (a)   INVESCall Member Hotline for HA Employees (3191 8088)

           •      Member Services Call Centre – Members may enquire
                  about their retirement investment and change their
                  investment choices etc. The Call Centre opens from 9
                  a.m. to 6 p.m. on Monday to Friday, and 9 a.m. to 1 p.m.
                  on Saturday.

           •      Interactive Voice Response System (“IVRS”) – This is a
                  24-hour automated service that allows members to
                  obtain the most current unit prices of each lifestyle fund
                  and the most updated account balances of the members
                  etc. It also allows members to change their investment
                  choice.

     (b)   INVESNet for HA Employees (www.hapfs.invesco.com.hk)

           This website provides information and tools that help members
           plan their investment strategies. Members can check their
           account balances, the latest unit prices, investment
           performance, asset allocation of different lifestyle funds, etc.
           Members can also read or download the Scheme’s Monthly
           Factsheet and Quarterly Information Update.


6.   Hospital Authority Intranet (http://ha.home/)

     The HA intranet provides members with the latest updates on unit
     prices, as well as the latest version of the Quarterly Information
     Update and the HAPFS Annual Report.
                                  -   20    -

                                                   Annex 9 to AOM-P490

                              Cost Details




                                                            (HK$ Millions)
             Costs                    2003/04     2004/05     2005/06
Investment Managers                    55.86       72.21        95.66
HAPFS Staffing and Office Costs        17.29       16.16        14.83
Administrator and Custodian            11.04       11.88        13.63
Professional and Other Fees                2.72     0.86        0.75
Total                                  86.91       101.11      124.87




                                                                         (%)
                                       % of total assets of the Scheme
                                              as at end-March:
             Costs                     2004         2005         2006
Investment Managers                        0.25     0.28         0.32
HAPFS Staffing and Office Costs            0.08     0.06         0.05
Administrator and Custodian                0.05     0.05         0.05
Professional and Other Fees                0.01     0.00         0.00
Total                                      0.39     0.39         0.42

				
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