state street global advisor asia limited– analysis of tracker fund

State Street Global State Street Global Advisor Advisor Asia Limited– Asia Limited– Analysis of Tracker Analysis of Tracker FundFund

Content

• Introduction of State Street Global Advisor Asia LimitedIntroduction of State Street Global Advisor Asia Limited

• Background of Tracker FundBackground of Tracker Fund

• Trend of Tracker FundTrend of Tracker Fund

• Comparison on Tracker Fund & Hang Seng UK Index FundComparison on Tracker Fund & Hang Seng UK Index Fund

• Advantages of investing Tracker FundAdvantages of investing Tracker Fund

• The Prospect of Tracker FundThe Prospect of Tracker Fund

Investment Company

- State Street Global Advisor Asia Limited

(SSgA Asia)

- regional headquarter of SSgA

SSgA : investment management division of State Street Corporation

Background :

• State Street Global Advisor (SSga)

• Established in 1978

• US$1.5 trillion

State Street Global Advisor Asia (SSgA Asis)

• 11 investment centers:

• Paris, Singapore, Hong Kong

-established in HK in 1990

-full investment center in 1997

Solutions:

• Defensive/

• aggressive strategies

• active /enhance/ passive style

Achievements:

• The largest manager of :

Institutional assets worldwide

Passive international indexed securities

Endowment and foundation assets, etc

• The manager of the Tracker fund

• Straits Times Index (STI)

• ABF Pan Asia Bond Index Fund (PAIF)

Background of Tracker Background of Tracker FundFund

Tracker Fund

• Stays close to the Hang Seng Index

• Buying Tracker Fund = Invest on a basket of stock:

~diversification~low transaction cost

• Launched on 12th November,1999

• Second large IPO in Asia(issue size HK$ 33.3 billion)

• Supported by governmentGovernment chose State Street Bank and Trust Co.

Background of Tracker Fund

Similarities and differencesbetween Track Fund and Common stock

Similarities:• Receive cash dividends• Buy or sell tracker Fund in Hong Kong during trading day• Tell the investment performance at any time

Difference:• Distribution of Dividend• Nature

Trend of Tracker FundTrend of Tracker Fund

Trend of TraHK

Trend of TraHK (cont’d)

U-shaped

Listed in HK stock market in 1999

Highest value: $19.39

Lowest value: $8.5

A watershed in mid-2003

Listed in 1999

Under the influence of Asia Financial Crisis

Unstable in the speculation of stock market

Market value fluctuated between $14 - $18

September 2001 911

Attacked financial market all over the world

TraHK dropped to $9

X

March 2003 SARS

Very week of the economy

Value nearly $8

SARS

• A watershed in 2003

• TraHK climbed up to over $19 in 2006

Comparison on Comparison on Tracker Fund & Hang Seng UK Tracker Fund & Hang Seng UK

Index FundIndex Fund

Comparison between two index fund

Tracker Fund

Vs.

Hang Seng UK

Index Fund

State Street

Global Advisors

Vs.

Hang Seng

Bank Management

Objectives

Tracker Fund:

• performance of the Hang Seng Index.

Hang Seng UK Index

• performance of the FTSE 100 Index

(英國富時指數 )

Distribution Policy

Tracker Fund:

• Distribute all of TraHK's net income

• Made net of TraHK’s expenses.

Hang Seng Index Fund:

• Unless a Unit holder requests

• Each distribution will be reinvested in the subscription for further units.

Charges & Expenses

Management Fee Administration Fee

Tracker Fund

0.05% HK$ 15 billion

0.045% next HK$ 15 billion

0.03% for the next 15 billion

0.025% excess of HK$ 45billion

$80 per unit holder

Hang Seng Index Fund

Up to 1 % of Net Asset Value

Max. up to 1 %

Weightings of Four Sectors

Sector of constituent Stocks

Tracker Fund

Weighting (%)

Hang Seng UK Index

Weighting (%)

No. of stocks 34 102

Finance 36.81% 27.63%

Utilities 5.23% 4.74%

Properties 10.72% 1.52%

Commerce and Industry

45.79% 15.38%

Others ---- 50.27%

Dividends

Tracker Fund (HKdollars)

Hang Seng UK Index Fund (US)

Current price

per share

$16.53 $13.02 ($101.6 in HK dollars)

Return Rate 10.16% 6.08%

Dividends HKD1.77 Reinvested

Summary on comparisons

Hang Seng UK index Fund:

• More diversify of the portfolio

• Different sectors in FTSE 100 Index

Tracker Fund:

• Investment requirement

• Return rate higher

Advantages of Advantages of investing Tracker Fundinvesting Tracker Fund

(1) Diversification

- Adverse proportion between risk and diversification

- Tracker Fund

Investing in a portfolio of securities

1-34 shares Hang Seng Index Funds

Risk decreases

(2) Low initial investment and low transaction cost

- Comparison between the investment cost of buying Tracker Fund and 1-34 Hang Seng Index Funds

*The figures are calculated on 23rd November 2006

- Using low initial investment cost to buy a portfolio

Tracker Fund

(2800)

HSBC Holdings

(0005)

Share Price $19.4 per share HK$146.3 per share

Investment Cost $19.4 x 500

= $9700

$146.3 x 500

= $73150

(2) Low initial investment and low transaction cost (con’d)

- 0.1125% stamp duty- less than 0.25% the brokers’ commission- 0.011% the transaction cost on Hong Kong

Exchanges and Clearing Limited

Less than 0.1%

• (3) Convenience

- Investors can buy and sell their Tracker Fund through brokers during the trading hours of the stock exchange

- Not limited by the rule—only one dealing per day Transact without the numbers of transaction

• (4) Professional management

- State Street Corporation

sound expertise and solid investment experience - change the weighting of the predicted performance of 34

Hang Seng Index Funds

Focusing on the Hang Seng Index do not necessary to acquire enough securities on different industries

The Prospect of Tracker The Prospect of Tracker FundFund

Prospect of Tracker Fund

• Competitive advantagelow transaction cost, trustee fee, low risk

• Do the competitive advantage still there in the future?

• Others Fund (like Hang Seng Index fund)challenge Tracker Fund

• Comparing Tracker Fund with Hang Seng Index Fund

• Return rate

• Weight of the sector of constituent stock

• Trustee fee

Redemption Fee

Management Fee Administration Fee Trustee Fee

Tracker Fund $ 15,000 for each

Up to 0.05% in respect of Net Asset Value to HK$ 15 billionUp to 0.045% in respect of Net Asset Value for the next HK$ 15 billionUp to 0.03% in respect of Net Asset Value for the next 15 billionUp to 0.025% in respect of Net Asset Value in excess of HK$ 45 billion

$80 per unit holder Same as Management Fee

Hang Seng Index Class A: NoClass B: 1% for holding less than 3 years

Class A: not applicableClass B: Up to 1%

Class A: Not applicableClass B: Up to 1% (currently waived by the manager)

Up to 0.1% in respect of Net Asset Value to HK$ 300,000,000Up to 0.06% in respect of Net Asset Value for the next HK$ 300,000,000Up to 0.03% in respect of Net Asset Value in excess of HK$ 600,000,000

The End of our The End of our presentationpresentationThank you for your Thank you for your attentionattention

Cheung Kai Yan, Irene Cheung Kai Yan, Irene (043011)(043011)

Chan Hiu Ting, Christine Chan Hiu Ting, Christine (043019)(043019)

Wan Kit Ying, Kitty (043020)Wan Kit Ying, Kitty (043020)

Law Fong Ting, Fonteyn Law Fong Ting, Fonteyn (043023)(043023)

Chan Sin Yan, Cyto Chan Sin Yan, Cyto (043024)(043024)