PENSION FUND ACCOUNTS

FUND ACCOUNT See 2004/05 2005/06

. note £'000 £'000

Dealings with members and employers

Contributions receivable

Employers - normal 4 88,134 103,764

Employers - special 4 2,742 3,614

Employers - additional 4 13 14

Members - normal 4 39,225 41,461

Members - additional voluntary 4 904 1,030

Transfers in

Individual transfers 16,776 23,250

Benefits payable

Pensions 4 (84,930) (90,813)

Commutation of pensions and Lump sum retirement benefits 4 (13,737) (15,476)

Lump sum death benefits 4 (1,629) (1,472)

Payments to and on account of leavers

Group transfers out 0 (1,162)

Individual transfers out (12,389) (19,389)

Refunds of contributions (546) (382)

State Scheme Premiums (CEP) (215) (203)

Administrative expenses 5 (1,555) (1,625)

Net additions (withdrawals) from dealings with members 32,793 42,611

Returns on investments

Investment income

Interest from fixed interest securities 4,016 448

Dividends from equities 38,247 48,644

Income from index-linked securities 6,227 7,015

Income from pooled investment vehicles 6,568 13,938

Net rents from properties 4,986 4,870

Interest on cash deposits 4,233 4,049

Other 174 115

Change in market value of investments

Realised 73,057 165,889

Unrealised 71,622 275,957

Taxation (3,742) (4,881)

Investment management expenses 5 (3,922) (4,422)

Net returns on investments 201,466 511,622

Net increase (decrease) in fund during the year 234,259 554,233

Add opening net assets of the Scheme 1,925,135 2,159,394

Closing net assets of the Scheme 2,159,394 2,713,627

NET ASSETS STATEMENT See Note 31 March 2005 31 March 2006

£'000 £'000

Investments at market value

Fixed interest securities 12 10,209 9,852

Index-linked securities 12 248,819 291,810

Equities 7, 10,12 1,280,379 1,606,834

Pooled Investment Vehicles 8,12 409,950 560,567

Property 12 86,335 103,418

Cash deposits 106,404 111,948

Total invested 2,142,096 2,684,429

Net current assets and liabilities

Contributions due from employers' 6,508 9,787

Other current assets 13,166 21,304

Current liabilities (2,376) (1,893)

Net assets - balance of fund 2,159,394 2,713,627

RECONCILIATION OF NET MOVEMENT

OF ASSETS OF THE FUND

Opening net assets 1,925,135 2,159,394

Net income available for investment:

Net additions from dealings with members 32,793 42,611

Investment income less expenses 56,787 69,776

Revenue surplus 89,580 112,387

Change in market value of investments 144,679 441,846

Closing net assets 2,159,394 2,713,627

Notes to the Pension Fund Accounts

1 Operations and management

The Hampshire Pension Fund covers employees of Hampshire County Council, Portsmouth and Southampton City Councils and all district councils in Hampshire, except teachers, for whom separate arrangements apply. It also covers 214 other scheduled and admitted bodies .

Detailed government regulations control rates of contribution and scales of benefits. Benefits are normally in the form of a lump sum and annual pension. In 2005/06 employees contributed £42.5m and employers £107.4m to the Fund. Contributions are calculated as a percentage of salary. 24,470 people were receiving pensions from the Fund at 31 March 2006.

During the year the Fund's investments were managed by three companies based in London:

- Aberdeen Asset Management Limited (33.5%)

- Schroder Investment Management (39.3%)

- SG Asset Management (19.8%)

There is also a property portfolio managed by Cordea Savills, Chartered Surveyors. (3.8%)

The Pension Fund Panel directs the management of the Fund. Following the elections in May 2005, this now consists of nine county councillors. There is also a representative of the two city unitary authorities (Portsmouth and Southampton), and a representative of the 11 district councils and other employers in Hampshire co-opted to the Panel. Both these representatives have full voting rights. Two representatives of the Fund's pensioners and contributors are co-opted to the Panel, also with full voting rights. There is also an independent adviser who attends Panel meetings. The Panel meets the managers twice a year to discuss performance and approve their management strategies.

2 Accounting policies

Accounting standards

The accounts have been prepared in accordance with the Code of Practice on Local Authority Accounting in the UK 2005 issued by the Chartered Institute of Public Finance and Accountancy. The accounts summarise the transactions and net assets of the Fund. They do not take account of future liabilities to pay pensions and other benefits. See note 3 for the actuarial position of the Fund, which does take account of such liabilities.

Basis of preparation

Income and expenditure are generally credited and debited to the revenue account when earned or incurred, not when received or paid (that is, on an accruals basis). However, transfer values paid and received have been included on a receipts and payments basis as recommended in the SORP.

Investments

Investments are shown in the accounts at their market value, which has been determined as follows:

- FTSE-100 and Reserve List stocks are valued using the SETS last traded price

- other listed securities and securities on other domestic markets - mid-market price at the close of business on 31 March 2006

- unlisted securities - using latest dealings, professional valuations, asset values and other appropriate financial information

- investments held in overseas securities - mid-market price at the close of dealing on 31 March 2006 translated into sterling at the rate that day

- the UK property portfolio - open market value at 31 March 2006 as estimated by the Fund's property advisers.

Acquisition costs

The cost of acquiring property and securities includes brokerage commission, legal fees and stamp duty.

3 Actuarial position

Investment policy for the Fund is to maximise the growth in its value and to ensure that its future liabilities can be met while keeping employers' contribution rates stable.

The actuary completed a valuation of the Fund at 31 March 2004 during 2004/05. The actuary calculated that a phased increase in the employers' contribution rates paid by both scheduled and admitted bodies would be necessary to meet the Fund's long-term liabilities. The rate paid by scheduled bodies in 2005/06 was 250%, and will rise to 275% in 2006/07 and 295% in 2007/08. The rate paid by admitted bodies in 2005/06 was 240%, and will rise to 265% in 2006/07, and 295% in 2007/08.

The next actuarial valuation of the Fund is due to take place at 31 March 2007.

4 Contributions and Benefits

The figures in the revenue account are broken down in the following table:

2004/05 2005/06

£'000 £'000

Contributions receivable

Administering authority 47,610 55,849

Scheduled bodies 80,151 90,491

Admitted bodies 3,257 3,543

131,018 149,883

Benefits payable

Administering authority 38,770 41,250

Scheduled bodies 59,026 63,884

Admitted bodies 2,500 2,627

100,296 107,761

5 Administrative and investment management expenses

The figures in the revenue accounts are broken down in the following table:

2004/05 2005/06

£'000 £'000

Administrative expenses

Pension administration costs and

other overheads 1,396 1,539

Office and other administrative expenses 159 86

1,555 1,625

Investment management expenses

Investment management expenses 3,290 3,740

Property manager's expenses 240 296

Actuary's and other fees 392 386

3,922 4,422

6 Investment returns

The return on the Fund in 2005/06 (as measured by Mellon Analytical Solutions) was 24.0%.

In the three years to 31 March 2006 a return of 19.2% a year was achieved.

7 Ten largest UK equity holdings

At 31 March 2006 the ten largest UK equity (company share) holdings by market value were as follows:

£'000

BP plc 66,482

GlaxoSmithKline plc 62,773

Royal Dutch Shell plc 59,632

HSBC plc 55,436

Vodafone plc 53,554

Royal Bank of Scotland Group plc 42,251

Barclays plc 35,424

Rio Tinto plc 25,828

AstraZeneca plc 22,917

Prudential plc 22,236

8 Five largest pooled investment vehicle holdings

At 31 March 2006 the five largest pooled investment vehicle holdings were as follows:

£'000

Aberdeen Funds Index Linked Bond Fund 118,622

Schroder North American Equity Fund 105,731

Aberdeen Fixed Income Sterling Credit Fund 57,697

Schroder Unit Trusts All Maturities Corporate Bond Fund 51,951

Societe Generale Japan Core Alpha Fund 37,890

9 Concentration of investments

During the year, no individual investment reached 10% of the value of the net assets of the Fund.

10 Analysis of UK equity investments by industrial sector

£'000

Oil & Gas ( oil and gas) 153,518

Basic materials (chemicals, mining, forestry) 59,170

Industrials (aerospace, defence, electronics, engineering) 94,775

Consumer goods (vehicles, household goods) 93,776

Health care (health care and pharmaceuticals) 87,789

Consumer services (general retailers, leisure, media) 156,271

Telecommunications (fixed line and mobile telecommunications) 77,641

Utilities 33,521

Financials 297,971

Technology 16,055

1,070,487

11 Unlisted investments

There were no unlisted investments held by the Fund.

12 Investment transactions

The equivalent figures for purchases and sales in 2004/05 were £1,003.8m and £935.9m.

13 Contingent liabilities

The Fund had no contingent liabilities on 31 March 2006.

14 Capital commitments

The Fund had no capital commitments at 31 March 2006.

15 Property

All the Fund's property is held as freehold.

16 Independent property valuer

In December each year the properties in the UK property portfolio are independently valued by Colliers CRE, Chartered Surveyors.

17 Rent reviews

All properties held in the UK property portfolio are subject to upward-only rent reviews every five years.

18 Pension Fund Annual report

Further information on the Fund's actuarial valuation, investment management arrangements and Statement of Investment Principles are contained in the Hampshire Pension Fund's Annual Report. A copy may be obtained on request from Dave Wilson, Principal Accountant, Corporate Finance, Hampshire County Council, The Castle, Winchester, SO23 8UB.