The Sir Murray MacLehose Trust Fund Trustee’s Report

For the period of 1 April 2006 to 31 March 2007

The Sir Murray MacLehose Trust Fund was set up at the suggestion of non-official members of the then Executive and Legislative Councils to commemorate the distinguished service of Lord Murray MacLehose as Governor of Hong Kong from 1971 to 1982. The Sir Murray MacLehose Trust Fund Ordinance (Chapter 1118), enacted on 21 May 1982, provides for the establishment and administration of the Fund. Section 3 of the Ordinance stipulates that the Fund is to be used for the benefit of the people of Hong Kong in such manner as the Chief Executive in his sole discretion may direct.

2. While the Secretary for Home Affairs Incorporated is the trustee of the Fund, the accounting work is carried out by the Trust Funds, Temples and Cemeteries Joint Secretariat. The Director of Audit is appointed by the Chief Executive under Section 7(2) of the Ordinance as the auditor of the accounts of the Fund.

Investment of the Fund

3. Under Section 5(2) of the Ordinance, an investment advisory committee (the Committee) has been appointed to give advice on the investment of the Fund. The members of the Committee as at 31 March 2007 were Mr MA Chiu-cheung, Andrew (Chairman), MsLEE Jai-ying, Mr CHEN Chung-nin, Rock, JP and Miss KO Kit-ying, Patra. HSBC Investments (Hong Kong) Limited has been appointed as the manager of the Fund and is responsible for the day-to-day financial arrangement of the Fund.

Grants from the Fund

4. Since the Fund’s inception in 1982, grants have been approved for 91 projects and the total amount approved was HK$96.13 million as at 31 March 2007. Out of the 91approved projects, 72 projects have been completed, seven were cancelled, 11 were pending final settlement of payments and one was still on-going.

Accounts of the Fund

5. As at 31 March 2007, the capital of the fund was HK$50,488,157 and the accumulated surplus of the fund was HK$40,815,759. A copy of the audited Balance Sheet and Income and Expenditure Account for the year ended 31 March 2007 is at the Appendix.

(Tsang Tak-sing)

Secretary for Home Affairs Incorporated

Trustee

MacLehose Fund

5 December 2007

Appendix

MACLEHOSE FUND

BALANCE SHEET AS AT 31 MARCH 2007

Note

/ 2007 / 2006
HK$ / HK$
CURRENT ASSETS
Financial assets at fair value through
profit or loss / 4 / 89,436,333 / 58,156,513
Accounts receivable / 604,919 / 340,556
Bank deposits / 1,341,494 / 36,076,292
91,382,746 / 94,573,361
CURRENT LIABILITIES
Accounts payable / 78,830 / 83,190
______/ ______
NET CURRENT ASSETS / 91,303,916 / 94,490,171
======/ ======
ACCUMULATED FUND
Capital / 50,488,157 / 50,488,157
Accumulated surplus / 40,815,759 / 44,002,014
______/ ______
91,303,916 / 94,490,171
======/ ======

The accompanying notes 1 to 6 form part of these financial statements.

(Tsang Tak-sing)

Secretary for Home Affairs Incorporated

Trustee

MacLehose Fund

5 December 2007

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MACLEHOSE FUND

INCOME AND EXPENDITURE ACCOUNT

FOR THE YEAR ENDED 31 MARCH 2007

Note

/ 2007 / 2006
HK$ / HK$

INCOME

Dividends / 471,486 / 563,982
Interest / 5 / 2,580,668 / 1,952,616
Gains on disposal of financial assets at
fair value through profit or loss / - / 829,610
Unrealised gains on financial assets at
fair value through profit or loss / 5,449,224 / 3,443,484
Refund of grants / 300,683 / 503,033
Exchange gains / 54,562 / -
8,856,623 / 7,292,725
EXPENDITURE
Grants / 11,696,154 / -
Losses on disposal of financial assets at
fair value through profit or loss / 17,337 / -
Investment management fee and charges / 329,387 / 319,691
Exchange losses / - / 60,501
12,042,878 / 380,192
______/ ______
(DEFICIT)/SURPLUS FOR THE YEAR / (3,186,255) / 6,912,533
======/ ======

The accompanying notes 1 to 6 form part of these financial statements.

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MACLEHOSE FUND

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 MARCH 2007

Capital
HK$ / Accumulated
surplus
HK$ / Total
HK$
Balance at 1 April 2005 / 50,488,157 / 37,089,481 / 87,577,638
Surplus for the year 2005-06 / - / 6,912,533 / 6,912,533
______/ ______/ ______
Balance at 31 March 2006 / 50,488,157 / 44,002,014 / 94,490,171
Deficit for the year 2006-07 / - / (3,186,255) / (3,186,255)
______/ ______/ ______
Balance at 31 March 2007 / 50,488,157 / 40,815,759 / 91,303,916
======/ ======/ ======

The accompanying notes 1 to 6 form part of these financial statements.

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MACLEHOSE FUND
CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 MARCH 2007
2007 / 2006
HK$ / HK$
CASH FLOWS FROM OPERATING ACTIVITIES
(Deficit)/Surplus for the year / (3,186,255) / 6,912,533
Dividends / (471,486) / (563,982)
Interest income / (2,580,668) / (1,952,616)
Unrealised gains on financial assets at fair value through profit or
loss / (5,449,224) / (3,443,484)
Losses/(Gains) on disposal of financial assets at fair value through
profit or loss / 17,337 / (829,610)
Decrease/(Increase) in accounts receivable / 41,968 / (1,259)
(Decrease)/Increase in accounts payable / (4,360) / 5,461
NET CASH (USED IN)/FROM OPERATING ACTIVITIES / (11,632,688) / 127,043
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of financial assets at fair value through profit or
loss / (61,973,921) / (19,165,511)
Proceeds from disposal of financial assets at fair value through
profit or loss / 36,125,988 / 43,245,876
Dividends received / 485,135 / 554,783
Interest received / 2,260,688 / 2,152,449
NET CASH (USED IN)/FROM INVESTING ACTIVITIES / (23,102,110) / 26,787,597
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS / (34,734,798) / 26,914,640
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR / 36,076,292 / 9,161,652
CASH AND CASH EQUIVALENTS AT END OF YEAR / 1,341,494 / 36,076,292
ANALYSIS OF THE BALANCES OF CASH AND CASH
EQUIVALENTS
Bank deposits with original maturity within three months / 1,341,494 / 36,076,292

The accompanying notes 1 to 6 form part of these financial statements.

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MACLEHOSE FUND

NOTES TO THE FINANCIAL STATEMENTS

1. GENERAL

The financial statements of the MacLehose Fund (the Fund) are prepared in accordance with section 7(1) of the Sir Murray MacLehose Trust Fund Ordinance (SMMTFO - Cap.1118). The Fund was established in 1982 for the benefit of the people of Hong Kong and is applied in such manner as the Chief Executive in his sole discretion may direct in accordance with section 3 of the Sir Murray MacLehose Trust Fund Ordinance. The address of the Fund’s principal place of business is 34th Floor, Wu Chung House, 213 Queen’s Road East, Wan Chai, Hong Kong.

2. SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of compliance

The financial statements have been prepared in accordance with applicable Hong Kong Financial Reporting Standards (HKFRSs) issued by the Hong Kong Institute of Certified Public Accountants and accounting principles generally accepted in Hong Kong.

(b) Basis of preparation

The financial statements have been prepared on an accrual basis and under the historical cost convention except that financial assets at fair value through profit or loss are stated at fair value as explained in the accounting policy set out in note 2(d) below.

(c) Adoption of new/revised HKFRSs

The Fund has adopted the new/revised HKFRSs which are effective and relevant to the Fund for the current accounting period.

The Fund has not early applied any HKFRS that is not yet effective for the current accounting period. The Fund has considered that these HKFRSs may not have a significant impact on its results of operations and financial position.

(d) Financial assets at fair value through profit or loss

Financial assets classified as held for trading are included in the category “financial assets at fair value through profit or loss”. Financial assets are classified as held for trading if they are acquired for the purpose of sale in the near term. Financial assets under this category are carried at fair value based on their quoted market prices at the balance sheet date. Changes in the fair value are included in the income and expenditure account in the period in which they arise. Gains or losses on disposal are also recognised in the income and expenditure account.

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(e) Foreign currency translation

Hong Kong dollar is the currency of the primary economic environment in which the Fund operates. Foreign currency transactions during the year are translated into Hong Kong dollars at the exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated into Hong Kong dollars at the exchange rates ruling at the balance sheet date. Exchange gains and losses are dealt with in the income and expenditure account.

(f) Revenue recognition

Interest income is recognised on an accrual basis. Dividend income is recognised when the Fund’s right to receive payment is established.

(g) Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value, having been within three months of maturity when acquired.

3. RISK MANAGEMENT

The Fund’s major financial instruments include financial assets at fair value through profit or loss and bank deposits. The main risks associated with these financial instruments are market risk and credit risk. Market risk is the risk that changes in market variables such as interest rates, equity prices and exchange rates may affect the fair value or cash flows of a financial instrument. Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. To minimise the potential adverse effects of such risks, the Investment Advisory Committee monitors the Fund’s investment management activities and stipulates the investment guidelines and strategy of the Fund. Operating within the investment guidelines and strategy endorsed by the Investment Advisory Committee, the fund manager (appointed under section 6(1) of the SMMTFO) conducts the day-to-day investment management and risk management of the Fund and provides professional advice in relation to the investment of funds.

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2007
HK$ / 2006
HK$
4. FINANCIAL ASSETS AT FAIR VALUE
THROUGH PROFIT OR LOSS
Equity Securities – at fair value
Listed in Hong Kong / 18,283,166 / 15,819,811
Unlisted / 14,181,815 / 10,952,372
32,464,981 / 26,772,183
Debt Securities – at fair value
Listed in Hong Kong / 2,005,064 / 2,014,702
Listed outside Hong Kong / 36,124,674 / 24,895,228
Unlisted / 18,841,614 / 4,474,400
56,971,352 / 31,384,330
______/ ______
89,436,333 / 58,156,513
======/ ======
5. INTEREST
Interest on bank deposits / 1,014,579 / 823,309
Interest on bonds / 1,566,089 / 1,129,307
______/ ______
2,580,668 / 1,952,616
======/ ======

6. COMMITMENTS

As at 31 March 2007, there were commitments of HK$13,303,846 (2006: Nil) in respect of a grant approved by the Chief Executive in October 2006.

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