Jeremy Gadbury, Alan Taylor Gadbury Group Limited 13 th January 2006

1. MPF, Five Years On and the Members are Making MoneyA talk on The Mandatory Provident Fund System for The Hong Kong Retirement Schemes Association Jeremy Gadbury, Alan Taylor Gadbury Group Limited 13th January 2006

2. Today’s agenda • What MPF has achieved in five years – the members are saving and making money. • Just how good has MPF performance been? • Some of the major issues in MPF. Gadbury Group Limited

3. What MPF has achieved in five years : the members are saving money 1,949,700 employees and 288,100 self employed are in the MPF system* and are saving money. • The average MPF balance, current and preserved accounts, is around HK$64,287 a member**. • Around one million people in Hong Kong have savings who probably didn’t have any before. • Legco papers end of November 2005 **Source MPFA quarterly statistics, September 2005. All other sources used here unless otherwise stated are Gadbury Group Limited Gadbury Group Limited

4. MPF performance - the background • Falling short term interest rates, late rise in 2005. • Four years of positive returns from bond markets, 2000- 2004, one year of declines 2005. • Two years of negative equity returns, 2001, 2002. • Three years of rising equity markets, 2003 – 2005. Gadbury Group Limited

5. MPF performance - the results according to the MPFA ANNUALIZED RATE OF RETURN OF THE MPF SYSTEM WEIGHTEDBY NET CONTRIBUTIONS Annualised Rate Annualised Composite CPI Years to of Return % Change 31.3.2002 -2.9% -2.15% 31.3.2003 -12.1% -2.09% 31.3.2004 19.2% -2.13% 31.3.2005 4.0% 0.87% 4 years to 31.3.2005 4.3% -1.38% Source MPFA Annual Report 2004-05; see Report for footnotes Gadbury Group Limited

6. MPF performance: two ways of looking at performance • Year on year, quarter on quarter, month on month – useful, with some recognition of risk, for assessing investment managers and products. • Regular saver’s return, the cumulative result of investing a regular sum each month – relevant from an MPF member’s point of view. Gadbury Group Limited

7. MPF performance - the results, a point to point view • For Balanced Funds – median returns • 2001 - 13.3% • 2002 - 10.1% • 2003 +26.2% • 2004 +12.9% • 2005 + 8.8% • Cumulative +20.0%, Annualised +3.7% Gadbury Group Limited

8. 3 questions about performance • How have MPF constituent funds performed since inception? • How well have the members done? • How does MPF performance compare to ORSO? Gadbury Group Limited

9. Measures growth in unit prices Source: MPF Performance Database Gadbury Group Limited

10. Measures actual gain to the members Source: MPF Performance Database Gadbury Group Limited

11. Effective returns to members have been much higher than simple price growth suggests Source: MPF Performance Database Gadbury Group Limited

12. Why was the Regular Saver's Return so good? Gadbury Group Limited

13. 3 year bull market 2 year bear market Source: MPF Performance Database Gadbury Group Limited

14. Source: MPF Performance Database Gadbury Group Limited

15. What if…? • What if market growth pattern had been different? • Same point to point unit price performance, reversed monthly growth pattern… Gadbury Group Limited

16. 'Reversed' Actual Source: MPF Performance Database Gadbury Group Limited

17. Source: MPF Performance Database Gadbury Group Limited

18. What about risk? Gadbury Group Limited

19. Source: MPF Performance Database Gadbury Group Limited

20. Source: MPF Performance Database Gadbury Group Limited

21. Source: MPF Performance Database Gadbury Group Limited

22. Source: MPF Performance Database Gadbury Group Limited

23. MPF and ORSO comparisons Gadbury Group Limited

24. Source: MPF Performance Database Gadbury Group Limited

25. Source: MPF Performance Database Gadbury Group Limited

26. Summary • Investment performance of most sectors good, after a shaky start • Regular Saver's Return very good (so the members should be happy) but could easily have been bad • Risk versus return • Between sectors, significant differences in volatility • Within each sector, less strong relationship between 'risk' and return • MPF fees reduce performance by up to 1.75% per year Gadbury Group Limited

27. The major issues in MPF - fees • MPF has an asset based fee structure. • The component parts of MPF are Traditionally asset based matters - investment management, trusteeship Transaction related – banking services, securities settlement, member record keeping administration Gadbury Group Limited

28. The major issues in MPF - fees • Fees are too high if they remain asset based. • 30% of contributions go in administration fees after twenty years • So far, a lack of interest in fees from members Gadbury Group Limited

29. Some other major issues For the MPFA and the industry to think about • After ten years preserved accounts will exceed current accounts. • Voluntary contributions for preserved account holders. • Employees making their own choices of MPF product. • MPF pays a lump sum, little help in providing retirement income. Gadbury Group Limited

30. Today’s agenda has been • What MPF has achieved in five years – the members are saving and making money • Just how good has MPF performance been? • Some of the major issues in MPF Gadbury Group Limited

31. Thank you Jeremy Gadbury, Alan Taylor Gadbury Group Limited January 2006

32. Gadbury Group LimitedMPF Consultants MPF Matters – a monthly commentary on the MPF system MPF and ORSO Fund Performance Database Reports Jeremy Gadbury 6227 5347 gadbury@iohk.com Alan Taylor 6280 0749 alan@atassociates.com.hk Gadbury Group Limited