C re a t i n g Va l u e - Morningstar, Inc

Pacific Century Regional Developments LimitedAnnual Report 2006

C r e a t i n g V a l u eF i n a n c i a l S e r v i c e s l

C o m m u n i c a t i o n s S e r v i c e s l

P ro p e r t y & I n f r a s t r u c t u re l

Pacific Century Regional Developments LimitedCompany Registration No. 196300381N

6 Battery Road #38-02 Singapore 049909Tel 65 6438 2366 Fax 65 6230 8777Email [email protected]

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www.global-reports.com

Pacific Century Regional Developments Limited (PCRD), a Singapore-based company listed on the Singapore

Exchange Securities Trading Limited, has interests in financial services, telecommunications and information

technology and property and infrastructure investment and development, throughout the Asia-Pacific region.

PCRD’s main subsidiary is Hong Kong-listed Pacific Century Insurance Holdings Limited (PCIH) (SEHK: 0065).

PCRD’s most significant investment is in Hong Kong-listed associated company, PCCW Limited (PCCW)

(SEHK: 0008; NYSE: PCW), a constituent of the Hang Seng Index and the MSCI Hong Kong Index. PCRD is

75.3% owned by the Pacific Century Group, which was founded in 1993. The Pacific Century Group acquired

control of PCRD in September 1994.

Corporate Profile


�

Once again, we have completed another year’s journey,

surmounting rigorous challenges and generating positive results.

Pacific Century Regional Developments remains responsive to

market trends and expectations, and ready to offer value to our

shareholders, associates and customers.

Contents

2 Chairman’s Statement

4 Board of Directors

8 Significant Events in 2006

9 Corporate Structure

�0 Financial Services

�4 Communications Services

24 Property & Infrastructure

26 Financial Highlights

28 Corporate Information

29 Financial Statements

��6 Report on Corporate Governance

�27 Shareholding Statistics

�29 Notice of 43rd Annual General Meeting

�34 Notes to the Proxy Form

�35 Proxy Form

Pacific Century Regional Developments Limited Annual Report 2006


2 Pacific Century Regional Developments Limited Annual Report 2006

Chairman’s statement

2006 was a year of value creation for shareholders

of the Company. The values of its two major assets

in Hong Kong were enhanced as demonstrated

both by the significant increase in their underlying

value as well as by solid operating results. These

enhancements in value are also measurable by the

attractive prices of recent much-publicised purchase

offers made to the Company for these assets.

The embedded value of our Hong Kong-listed subsidiary,

Pacific Century Insurance Holdings Limited (PCIH), grew

by 26% to HK$6.231 per share, representing a pick up

of approximately S$206.7 million (HK$1,046 million) in

shareholders’ value. Sales and net profit surpassed all previous

years while other key performance indicators continued to

show improvement with investment return, policy persistency

and claim experience, all performing better than expected.

PCIH’s individual annualised first year premiums increased

58.8% to S$141.4 million (HK$693.2 million), contributed from

insurance contracts of S$74.1 million (HK$363.2 million), up

12.2%, and investment contracts of S$67.3 million (HK$330.0

million), up 192.3% from 2005. Single and first year premiums

increased 13.2% to S$68.4 million (HK$335.2 million), renewal

premiums increased 8.3% to S$331.2 million (HK$1,624.1

million) and total premiums increased 9.1% to S$399.6 million

(HK$1,959.3 million) as compared to 2005. Total turnover

increased by 9.1% to S$406.6 million (HK$1,993.9 million) as

compared to 2005.

PCIH reported a profit from ordinary activities attributable to

equity holders of S$65.7 million (HK$322.4 million) for the year

ended 31 December 2006, representing an increase of 658.6%

from S$9.1 million (HK$42.5 million) in 2005. The increase in

earnings was mainly due to a higher profit contribution from

a larger inforce portfolio, good investment returns for the year

and the realisation of some past unrealised gains during the

year. Policyholders’ benefits increased by 32.0% to S$164.3

million (HK$805.7 million). In line with this business expansion,

total operating expenses for the year were S$335.4 million

(HK$1,644.8 million), 27.6% above 2005. PCIH’s sales force

continued to grow. The number of agents increased from

1,696 at the end of 2005 to 2,031 by the end of 2006. Agency

productivity measured by total annualised first year premiums

per agent/month was HK$33,000, representing a growth of

26.9% from HK$26,000 in 2005. As at 31 December 2006, the

total number of inforce policies was 316,970 as compared to

294,457 in 2005, an increase of 7.6%.

2006 marked a year of solid growth for investments under

PCIH’s management. Total funds under management rose by

almost 20% to over S$1.8 billion (HK$9 billion) at the end of

2006. As the fund size continued to grow, PCIH expanded

its investment team with the aim of sustaining exceptional

performance for its clients. On 13 December 2006, PCIH

announced the acquisition of a 31 storey Grade-A office

complex situated at 1063 King’s Road for HK$1.472 billion from

Hongkong Land Group. This property offers approximately

290,000 sq. ft. of office space which is currently 100% leased

to a wide range of high quality tenants.


3Pacific Century Regional Developments Limited Annual Report 2006

On 1 March 2007, Fortis Insurance International N.V.

(“Fortis”) and the Company announced that they had entered

into an agreement whereby Fortis will acquire a controlling

interest of over 50% in PCIH for a total cash consideration

of approximately HK$3.5 billion (HK$8.18 per share). Based

upon PCIH’s 2006 results, the purchase price implies a

valuation of approximately 1.38 times embedded value. It

also represents a 58.2% premium to PCIH’s last closing price

of HK$5.17 per share as at 23 February 2007, or a 59.1%

premium to the average of PCIH’s closing prices over the

ten full trading days immediately prior to and including 23

February 2007. The controlling stake will be acquired from

PCRD and from certain other shareholders of PCIH. PCRD

will record a gain from the sale in 2007, upon completion, of

approximately S$364.9 million.

The market value of the Company’s holding of shares in PCIH

as at 31 December 2006 was $349.7 million compared to the

book cost of this investment of $72.8 million at company-level

and the PCRD Group’s share of PCIH’s net asset value of

$255.6 million.

Our most significant asset and associated company, PCCW

Limited (PCCW), continues to deliver on its strategy of

creating value by leveraging existing assets and investing in

new growth opportunities. PCCW has stabilised and begun

turning around its core telecommunications business. It has

also integrated its new mobile business, and continues to

expand its innovative TV & Content offerings.

In 2006, PCCW achieved a solid financial and operating

performance in the face of intense competition. In 2007,

PCCW will begin unleashing the potential of its quadruple

play platform as it delivers a growing variety of content and

interactive services to its customers across four distinct

platforms – fixed-line, broadband, mobile and TV. This unique

quadruple play strategy, market-leading service standards

and innovative technologies clearly distinguish PCCW from

its domestic competitors.

PCCW’s success in winning the exclusive live broadcast rights

to English Premier League matches for the next three seasons

beginning in August 2007 has further strengthened its position

as the premier pay-TV operator in Hong Kong.

The market value of the Company’s holding of shares in PCCW

as at 31 December 2006 was $1,427 million compared to the

book cost of this investment of $957 million at company-level.

PCRD’s direct interests in property development have

continued to perform well in 2006. The Company has

achieved steady returns from its investment interests in India

and Vietnam.

These achievements could not have been accomplished

without the support of our shareholders and the efforts

of the executives of the Company who have worked

tirelessly to create value for our shareholders. The Board and

I remain fully committed to continuously seeking opportunities

for value creation.

Richard Li

Chairman

Chairman’s statement



Board of Directors

RiChaRD Li tzaR Kai • 40Chairman

Appointed as Chairman of PCRD in 1994, Mr. Li was last re-elected as a Director in 2005. An Executive Director and a member of the Executive Committee of PCRD, Mr. Li is also Chairman of PCCW Limited, Chairman and Chief Executive of the Pacific Century Group and Chairman of Pacific Century Premium Developments Limited.

Mr. Li is a Non-Executive Director of The Bank of East Asia, Limited. He is also a member of the Center for Strategic and International Studies’ International Councillors’ Group in Washington, D.C., and a member of the Global Information Infrastructure Commission.

Mr. Li is also a Council Member of the Chinese University of Hong Kong.

FRanCis Yuen tin Fan • 54Deputy Chairman

Appointed as Deputy Chairman of PCRD in 2005, Mr. Yuen was last re-elected as a Director in 2005. He is also Executive Chairman of Pacific Century Insurance Holdings Limited.Mr. Yuen was the Chairman of PCRD in 1993 and 1994 when it was known as Seapower Asia Investments Limited and Deputy Chairman of PCRD from 1997 to 2002.

He joined the Pacific Century Group in 1996 after an extensive career in investment banking and financial regulatory affairs across Asia. From 1988 to 1991, he was Chief Executive of The Stock Exchange of Hong Kong Limited. Mr. Yuen was also a founding director of Hong Kong Securities Clearing Company Limited. He served from 1992 to 1994 as a member of the International Markets Advisory Board of NASDAQ in the United States.

He received a Bachelor of Arts Degree in Economics from the University of Chicago and is currently a member of the Board of Trustees of the university.



Board of Directors

PeteR a. aLLen • 5�Group Managing Director

Appointed as an Executive Director in 1997 and as Group Managing Director on 1 November 2006, Mr. Allen was last re-elected as a Director in 2006. A member of the Nominating and Executive Committees of PCRD, Mr. Allen is also an Executive Director and Director of Corporate Development of PCCW Limited, a Non-Executive Director of Pacific Century Insurance Holdings Limited and Chief Financial Officer of the Pacific Century Group.

Mr. Allen joined KPMG Peat Marwick in 1976 before taking up an appointment at Occidental Petroleum Corporation in 1980. In 1983, he joined Schlumberger Limited and worked in various countries holding key management positions. In 1989, Mr. Allen moved to Singapore as Regional Financial Director of the Vestey Group. He later joined Bousteadco Singapore Limited as Group Operations Controller in 1992 and Morgan Grenfell Investment Management (Asia) Limited as Director and Chief Operating Officer in 1995. Mr. Allen joined the Pacific Century Group in 1997.

He was educated in England and has a degree in economics from Sussex University, England. He is a Fellow of both the Institute of Chartered Accountants in England and Wales and the Institute of Certified Public Accountants of Singapore.

aLexanDeR anthonY aRena • 56Executive Director

Appointed as an Executive Director in 1999, Mr. Arena was last re-elected as a Director in 2006. An Executive Director, Chairman of the Executive Committee and a member of the Nominating Committee of PCRD, Mr. Arena is also an Executive Director and Group Chief Financial Officer* of PCCW Limited and an Executive Director of Pacific Century Premium Developments Limited. He joined the Pacific Century Group in 1998.

Prior to joining the Pacific Century Group, Mr. Arena was a Special Policy Adviser to the Hong Kong Government from 1997 to 1998. From 1993 to 1997, he was Director-General of Telecommunications at the Office of the Telecommunications Authority of Hong Kong as well as a member of the Broadcasting Authority. Before his appointment as Director-General, Mr. Arena was recruited to plan a reform program for the liberalisation of Hong Kong’s telecommunications sector. Prior to his appointment to the Hong Kong Government, he was an inaugural member of the Australian Telecommunications Authority, where he served for four years.

Mr. Arena has had an extensive career in public administration, specialising in high technology and infrastructure industries. From a practising radio/communications engineer to a public policy maker, his experience spans such diverse areas as the commercialisation of government-owned business enterprises and deregulation in the aviation, transport, telecommunications and postal industries.

Mr. Arena graduated from the University of New South Wales, Australia, with a Bachelor’s Degree in Electrical Engineering. He completed a MBA at Melbourne University, Australia, and is a Fellow of the Hong Kong Institution of Engineers.

* Has been appointed Group Managing Director of PCCW Limited with effect from 30 April 2007.



Board of Directors

GoRDon seow Li-MinG • 74Independent Director

Appointed as a Director of PCRD in 1994, Mr. Seow was last re-appointed as a Director in 2006 pursuant to Section 153(6) of the Companies Act, Cap. 50. An independent Director and Chairman of the Nominating Committee, Mr. Seow is also a member of the Audit, Remuneration and Executive Committees of PCRD. In addition, Mr. Seow currently serves as an independent Director on the board of Hotel Properties Limited.

Previously, he served as Director of Jardine Fleming Indonesia Fund Inc., Jardine Fleming Philippine Fund Inc., Kim Eng Holdings Ltd, Adroit Innovations Ltd and Zindart Ltd. He was a Senior Adviser to the Pacific Century Group from 1994 to 1999. Prior to that, Mr. Seow served as Singapore’s Commissioner to Hong Kong from 1988 to 1994. He held various positions in the Shell Group of Companies in Singapore from 1958 to 1987, and retired as Director and Regional Trading Manager of Shell Eastern Petroleum Pte Ltd in 1987. He is a Barrister-at-Law (Lincoln’s Inn, London-1956).

toM Yee Lat shinG • 72Independent Director

Appointed as a Director in 1991, Mr. Yee was last re-appointed as a Director in 2006 pursuant to Section 153(6) of the Companies Act, Cap. 50. An independent Director, Chairman of the Audit Committee, Mr. Yee is also a member of the Nominating and Remuneration Committees of PCRD.

Mr. Yee is a Certified Public Accountant and was a partner of an international public accounting firm from 1974 to 1989. He has more than 35 years of experience in the field of accounting and auditing and extensive experience in handling major audit assignments of public listed and private companies in various industries, including insurance, manufacturing and retailing. Currently a consultant, Mr. Yee also sits on the boards of several listed companies including General Magnetics Ltd, Bonvests Holdings Limited, Powermatic Data Systems Limited, Cosco Corporation (S) Ltd, Pokka Corporation (Singapore) Limited and Eagle Brand Holdings Limited.

He is a council member of the Institute of Certified Public Accountants of Singapore.



Board of Directors

ChnG hee KoK • 58Independent Director

Appointed as a Director in 1988, Mr. Chng was last re-elected as a Director in 2006. An independent Director and Chairman of the Remuneration Committee, Mr. Chng is also a member of the Nominating and Audit Committees of PCRD.

A former Member of Parliament (1984 to 2000), Mr. Chng is currently the Chief Executive Officer of the NTUC Club. He was the Chairman of United Pulp & Paper Co Ltd, Chief Executive Officer of Yeo Hiap Seng Ltd and Scotts Holdings Ltd. He was also a member of the Public Utilities Board, Singapore Power Ltd and the Sentosa Development Corporation (2001 to 2005) and was a council member of the Singapore Institute of Directors. He sits on the boards of several listed companies including Samudera Shipping Line Ltd, Brilliant Manufacturing Ltd, Joinn Holdings Ltd, Full Apex (Holdings) Ltd and People’s Food Holdings Ltd.

Mr. Chng graduated from the former University of Singapore with a Bachelor of Engineering (First Class Honours) and a Master of Business Administration from National University of Singapore.



significant events in 2006

JanuaRY

now TV announces a three-year contract providing exclusive Hong Kong rights to broadcast live UEFA Champions League matches via ESPN and STAR Sports channels beginning September.

TPG Century Ltd (“TPG”), Newbridge Century Ltd (“Newbridge”) and PCRD announce that they have entered into an implementation agreement to effect an acquisition by TPG and Newbridge through a scheme of arrangement (the “Scheme”) of all the shares held by the minority shareholders of PCRD.

FeBRuaRY

PCCW Solutions wins an eight-year contract for the design, build, installation and maintenance of a Government Financial Management Information System for the Treasury of the Hong Kong SAR Government.

MaY

PCCW mobile announces the world’s first provision of real-time TV on a 3G mobile handset using Cell Multimedia Broadcast technology.

JuLY

A proposed sale of shares in PCCW to Mr. Francis P.T. Leung and Fiorlatte Limited is announced.

sePteMBeR

PCCW mobile announces the launch of “now on mobile”, an array of now TV content made available to PCCW mobile customers 24 hours a day.

Pacific Century Group (Cayman Islands) Limited (“PCG”) announces that it has agreed to perform and be bound by the obligations of TPG and Newbridge under the Scheme to acquire all the issued shares held by the minority shareholders of PCRD (the “Amended Scheme”).

noveMBeR

Peter A. Allen is appointed as Group Managing Director.

PCCW announces exclusive Hong Kong rights to broadcast live English Premier League matches for three seasons beginning 2007/08. Final agreement is expected to cover a total of 370 matches on now TV, “now on mobile” via PCCW mobile’s 3G service and NETVIGATOR’s now.com.hk portal.

Resolution for acquisition by PCG through the Amended Scheme is rejected by shareholders at an Extraordinary General Meeting.

Resolution for the proposed sale of shares in PCCW to Mr. Francis P.T. Leung and Fiorlatte Limited is rejected by shareholders at an Extraordinary General Meeting.

DeCeMBeRPCCW mobile announces the launch of “Moov on mobile”, making MOOV’s 60,000 songs and music videos exclusively available to PCCW mobile customers via streaming technology.

PCRD redeems secured redeemable exchangeable bonds of aggregate principal value of US$150 million held by AIG Asian Infrastructure Fund II L.P., American International Assurance Company (Bermuda) Limited and AIG Asian Opportunity Fund L.P..



Corporate structure

FinanCiaL seRviCes Hong Kong Pacific Century insurance holdings Limited

PRoPeRtY & inFRastRuCtuRe India Fort house, Mumbai

Vietnam Chancery saigon hotel, Ho Chin Minh City

Pacific Century Premium Developments Limited (subsidiary of PCCW Limited)

Hong Kong l Cyberport

l Residence Bel-air

China l Pacific Century Place, Beijing

CoMMuniCations seRviCes Hong Kong PCCw Limited (associated company & major investment)

l telecommunications services

l Local Telephony Services

l International Telecoms Services

l PCCW Mobile

l Broadband l now TV l Netvigator

l PCCW Global

l Business esolutions

l PCCW Solutions

l PCCW Directories

l ReaCh (50%)


�0 Pacific Century Regional Developments Limited Annual Report 2006

PRoviDinG GReateR FinanCiaL seCuRitY

PCIH as a dedicated provider of quality insurance protection to individuals and

businesses continues to demonstrate its capability to achieve better results. With

a dynamic team pushing the company forward at every step of the way, PCIH is

set to advance further and at a brisker pace.

F i n a n c i a l s e r v i c e s


��Pacific Century Regional Developments Limited Annual Report 2006

PCIH reported a profit from ordinary activities attributable to

equity holders of S$65.7 million (HK$322.4 million) for the

year ended 31 December 2006, representing an increase of

658.6% from S$9.1 million (HK$42.5 million) in 2005. Basic

earnings per share was HK$0.40 as compared to HK$0.05 in

2005. The increase in earnings was mainly due to a higher

profit contribution from a larger inforce portfolio, good

investment returns, for the year and the realisation of some

past unrealised gains during the year. Annualised first year

premiums increased 58.8% to S$141.4 million (HK$693.2

million), contributed from insurance contracts of S$74.1 million

(HK$363.2 million), up 12.2%, and investment contracts of

S$67.3 million (HK$330.0 million), up 192.3% from 2005.

Single and first year premiums increased 13.2% to S$68.4

million (HK$335.2 million), renewal premiums increased 8.3%

to S$331.2 million (HK$1,624.1 million) and total premiums

increased 9.1% to S$399.6 million (HK$1,959.3 million) as

compared with 2005. Total turnover showed an increase of

9.1% to S$406.6 million (HK$1,993.9 million) as compared

to 2005.

Investment income, net gains, and other income increased

by 145.9% to S$187.5 million (HK$919.2 million). Unrealised

gains reserve decreased to S$23.4 million (HK$114.9 million)

from S$38.2 million (HK$187.5 million) in 2005. Policyholders’

benefits increased by 32.0% to S$164.3 million (HK$805.7

million). Agency commission and allowances increased

26.4% to S$100.3 million (HK$492.0 million) as compared

to the previous year, which was attributable to the increase

in number of agents and more new business transacted

during the year. Management expenses increased by 54.1%

to S$95.4 million (HK$468.0 million) due to expansion of

PCIH’s operations and also special non-recurring expenses

of S$11.7 million (HK$57.2 million), including a provision

for settlement of litigation for an amount of S$8.1 million

(HK$39.8 million). Total operating expenses for the year were

S$335.4 million (HK$1,644.8 million), 27.6% above 2005.

aGenCY oPeRations

The sales force continued to grow with the number of agents

increasing to 2,031 by 31 December 2006 as compared to

1,696 at the end of 2005. Agency productivity measured by

total annualised first year premiums per agent/month was

HK$33,000, representing a growth of 26.9% from HK$26,000

in 2005. In order to improve the agents’ professionalism

and quality, PCIH set up the PCI Academy of Professional

Development and a new training centre in Langham Place

in 2005. The PCI Academy of Professional Development

designs and provides various training programs which enable

PCIH’s agents to improve their selling skills and product

knowledge and to attain professional qualifications in the

insurance industry. During the year, PCIH launched several

new products to meet the needs of its policyholders.

Financial services

The Company’s interests in financial services are

held through Pacific Century Insurance Holdings

Limited (PCIH), our listed subsidiary in Hong Kong

which was approximately 47.1% owned by PCRD

at 31 December 2006 and over which the Company

exercised control. PCIH is the holding company of

Pacific Century Insurance Company Limited (PCI).

PCI is one of the largest life insurance companies in

Hong Kong.



Financial services

LiFe oPeRations

As at 31 December 2006, the total number of inforce policies

was 316,970 compared to 294,457 in 2005, an increase of

7.6%. Total premiums also increased by 9.1%. Whilst the

Renewal Ratio improved to 100.5% as compared to 100.3%

for 2005, both the 13th month and 25th month persistency

rates slightly decreased from 88.8% to 88.7% and 79.1% to

78.0% respectively. The claim ratio also improved from 95.5%

in 2005 to 88.6% in 2006.

A total of three new products were introduced in 2006 to cater

for various needs of existing and potential policyholders. One

of these products is a whole life insurance product with built-

in medical benefit which reimburses hospitalisation expenses

subject to certain limits, with an optional rider to enhance

benefit levels. Another new product provides personal

accident coverage aiming to supplement PCIH’s existing

portfolio. In January of 2005, a project to implement a new

policy administration system aimed to improve operational

efficiency and to better serve policyholders was initiated.

The new system is targeted for completion in 2007.

PCi investMent ManaGeMent LiMiteD (PCiiM)

2006 marked a year of solid growth for PCIIM. Excluding

a US$500 million synthetic Collateralised Debt Obligation

transaction in which PCIIM serves as portfolio manager, total

funds under management rose by almost 20% to over HK$9

billion at the end of 2006. As PCIIM’s fund size continues to

grow, they have expanded their investment team with a view

to sustaining exceptional performance for their clients. For the

first time in a long while, there is a wide divergence in views

among economists regarding the outlook for the US economy.

Against this uncertain backdrop, we expect that 2007 will be

a volatile and challenging year for investment. Supported by

ample liquidity, recent asset price appreciation reflect general

complacency among investors. PCIIM will continue to adopt

a cautious approach in managing its portfolios since the

external financial environment could change abruptly.

CaPitaL aDequaCY anD FinanCinG

As at 31 December 2006, PCIH held cash and bank balances

of S$118.0 million (HK$597.1 million) and time deposits of

S$389.7 million (HK$1,971.7 million). In 2006, invested assets

increased by S$254.8 million (HK$1,289.0 million) to S$1,905.7

million (HK$9,641.6 million), which was mainly due to premium

income received. As at 31 December 2006, PCIH’s total

assets were S$2,297.6 million (HK$11,624.5 million) and net

assets were S$543.1 million (HK$2,747.7 million), an increase

of 14.0% and 5.0% respectively as compared to 2005. On

a statutory reporting basis, PCIH’s net assets far exceeded

the statutory net surplus required by Hong Kong Insurance

Regulations. PCIH performs resilience tests regularly to

monitor its solvency position and to ensure movements in

equity markets and interest rates and any potential risks are

immediately drawn to the attention of management. As at 31

December 2006, the gearing ratio of PCIH was 28.1%.


�3Pacific Century Regional Developments Limited Annual Report 2006

RatinGs

Fitch Ratings, Moody’s Investors Service, The A.M. Best

Company and Standard & Poor’s have all reaffirmed their

Insurer Financial Strength ratings of “A-”, “Baa2”, “A-

(Excellent)” and “BBB-” respectively on PCI in their 2006

annual review.

eMBeDDeD vaLue

Basis

Embedded value is the sum of adjusted statutory net asset

value plus the value of inforce business, adjusted for the cost

of holding the required solvency margin. The following key

assumptions are used:

Investment return: 7% per annum (2005: 7%)

Risk discount rate: 10% per annum (2005: 10%)

Embedded Value

The embedded values per share for the year ended 31

December 2006 and the past four years are as follows:

Year embedded value per share

(hK$)

2006 6.231

2005 4.947

2004 4.327

2003 3.940

2002 3.557

Value of One Year’s New Business

The value of one year’s new business is the sum of the

discounted projected future after-tax statutory profits

generated from the new business written during the year,

adjusted for the cost of holding the required solvency

margin. The assumptions used are the same as those used

in the calculation of embedded value. For the year ended

31 December 2006, the value of new business was S$24.8

million (HK$125.5 million). The methodology and actuarial

assumptions used in the calculation of embedded value and

value of new business as at 31 December 2006 have been

reviewed and are considered reasonable by Watson Wyatt, an

internationally recognised actuarial consulting firm.

Sensitivity

The following reflects our estimates of embedded value as at 31

December 2006 if we make changes to certain assumptions:

hK$

Base scenario 6.231

12% risk discount rate 5.679

90% lapse rate 6.441

90% operating expenses 6.310

90% mortality/morbidity rate 6.483

6.75% investment rate 5.943

(no adjustment on dividends)

These figures have not been reviewed by Watson Wyatt.

Financial services



FuLFiLLinG uRBan LiFestYLe exPeCtations

PCCW, Hong Kong’s first “Quadruple-Play” operator now provides innovative

services across four platforms – fixed-line, broadband internet access, TV and

mobile. PCCW is no longer merely an access provider – but is now a new brand

of ICT/media – delivery player.

C o m m u n i c a t i o n s s e r v i c e s



Communications services

2006 saw PCCW become Hong Kong’s first “quadruple-play”

operator, changing the face of the local telecommunications

industry. Customers are now able to tailor their own digital

lifestyles at home, at work and on the move, thanks to

PCCW’s newfound power to provide innovative services

across four platforms – fixed line, broadband Internet

access, TV and mobile. A prime example was the world’s

first screening of real-time television on 3G handsets using

Cell Multimedia Broadcast technology to take programming

from its now TV platform to mobile phones. A whole new

vista of opportunity then materialised as PCCW set out to

discover more imaginative ways of applying its quadruple-

play capability to produce a succession of innovative-yet-

affordable services. Synergies between formerly disparate

business units soon began to emerge, giving rise to new lines

of business, the transformation of PCCW from being merely

an access provider – as a traditional telecoms operator – to

a new breed of ICT/media-delivery player giving a whole new

meaning to the PCCW brand. In addition, PCCW’s award-

winning innovation in Hong Kong in the public and private

sectors is now in demand overseas, opening up more revenue

earning opportunities and positioning PCCW as an industry

role model on the world stage.

teLeCoMMuniCations seRviCes (tss)

Local Telephony

Yet more innovative services and functionality from PCCW

continued to enrich Hong Hong’s fixed-line experience in

2006, helping PCCW to enjoy more net line gain and stability,

and focus on increasing average revenue per user. New

initiatives launched to differentiate PCCW in the residential

market included the EasyReach service to provide customers

with express hotline access to “personal assistants” without

having to go through the Interactive Voice Response Service

(IVRS) process. For a modest monthly fee, EasyReach now

expedites all customer issues relating to fixed-line and other

services – such as International Direct Dial (IDD), NETVIGATOR

and now TV – in the same account. In addition, PCCW’s New

Generation Fixed Line services were enhanced by the latest

The most significant asset of the Company is its

shareholding in Hong Kong-listed PCCW Limited

(PCCW). At 31 December 2006, PCRD held

approximately 22.6% of PCCW’s issued share

capital and the Company continues to be the largest

shareholder of PCCW. PCCW is the largest and most

comprehensive communications provider in Hong

Kong and one of Asia’s leading players in Information

and Communications Technologies (ICT).




audio-infotainment phone, which provides an array of exciting

audio content at the press of a user-friendly, one-touch

button. This innovative new strain of fixed-line service delivers

enjoyment to the home in the form of Disney stories, quizzes,

cooking tips and fortune telling, plus a range of other useful

infotainment. More innovation in the pipeline will give rise to

a revolutionary service that combines communications with

entertainment, everyday-life applications and information on

one single terminal – making full use of PCCW’s quadruple-

play capability. In the commercial fixed-line market, a strong

Hong Kong economy stimulated demand, with new and

expanding businesses giving rise to growth of some 1,000

lines per month in 2006.

International Telecoms Services

Even though Hong Kong’s IDD market remains fiercely

competitive, PCCW achieved double-digit growth in

international traffic in 2006, with overall price erosion at lower

levels than in previous years. In the consumer market, term

plans offering a number of IDD minutes at a fixed price proved

popular, and PCCW was particularly successful in encouraging

SUNDAY and PCCW mobile subscribers to adopt its 0060 IDD

service for their international calling. PCCW’s Hello-branded

prepaid international calling card proved extremely attractive

to workers from overseas and led the local prepaid IDD-card

market last year.

Local Data

Hong Kong’s buoyant economy generated strong demand

for data services, as the local business community deployed

an increasing number of bandwidth-hungry applications

to serve their growing commercial needs. General growth

led to more business premises requiring data connectivity,

especially in the retail industry, which saw a rise in

the number of new outlets opened by chains. PCCW’s

Commercial Group also won business by supporting Hong

Kong’s 3G operators with fixed-carrier services, as more

users adopted mobile data applications and placed heavier

demand on operational bandwidth.

Broadband

The NETVIGATOR brand grew in stature throughout 2006,

as PCCW continued to increase numbers of broadband

customers. PCCW’s reputation for quality, stability and




tip-top customer service, coupled with the increasing

popularity of now TV, helped reduce rate of churn among

Consumer Group customers last year to a record low. In the

commercial market, Business NETVIGATOR focused on the

continued creation of practical value-added services, as well

as differentiating the brand and value proposition among

competitors and growing average revenue per user. Growth

was driven by exploring the potential beyond simple Internet

access and designing innovative broadband applications to

boost business power and competitiveness for enterprises.

PCCW also generates revenue by supplying capacity to

other broadband providers on a wholesale basis. The boldest

move in the local broadband market came in early 2007 when

PCCW began to transform Hong Kong into a “Wi-Fi city” by

increasing the number of hotspots from 400 to 3,000 and

extending coverage to MTR stations. High-speed Internet

access without wires is now no more than a short walk away

in the city and PCCW Wi-Fi users are able to get online at

an affordable price with any of a growing number of Wi-Fi-

enabled devices, such as laptops, PDAs, mobile phones and

entertainment gadgets.

PCCW Consumer Sales and Channels

A major task last year was to coach PCCW’s sales

professionals to ensure customers enjoy optimum benefit

from PCCW’s newfound ability to provide services and media

content across four delivery platforms. PCCW runs one of

the largest and most innovative sales operations in Hong

Kong, via channels that include retail outlets, 24-hour call

centers, a direct sales team and partnership arrangements.

The number of PCCW shops in Hong Kong rose from 17 to

25 in 2006 and is expected to increase by another 18 in 2007

as SUNDAY outlets join the chain. Providing an interactive

shopping experience and practical demonstrations of PCCW’s

quadruple-play capability, these attractive retail outlets offer

total connectivity plus a full range of digital products and a

greatly expanded mobile communications service to support

the PCCW mobile brand. PCCW’s products and services

are also taken to consumers by Hong Kong’s largest mobile

team of direct sales professionals, while more than 1,000

business agents act as retail outlets for PCCW phonecards,

network services, computer hardware and accessories. The

increasingly popular i.shop lifestyle magazine continues to

generate significant revenues by promoting a wide variety of

ICT products and services available from PCCW’s integrated

sales channels.




Technology Roadmap

2006 saw steady progress in PCCW’s evolution from access

provider, as a traditional telecoms operator, to becoming

a new breed of ICT/media-delivery player carrying content,

applications and transactions, as well as voice. Part of that

evolution is PCCW’s transition to an all-IP network – or Next

Generation Network (NGN) – that will create a “super-highway”

to carry all traffic, whether voice, Internet, video, multimedia

or applications. Running until 2014, the NGN project has been

planned so that annual capital expenditures and eventual costs

will be proportionate to the levels of investment traditionally

required over time to keep legacy networks up to speed with

demand. Based on a “just-in-time” planning model so that

existing equipment is replaced at the end of its useful lifespan,

the transition will begin switching exchanges to the NGN in

2007. Higher-speed bandwidth rollout to customers – beyond

existing 8 Mbit/s rising to 25 Mbit/s services – continued in

2006, as PCCW introduced optical fiber to more Hong Kong

buildings. This enables ADSL2+ (up to 25 Mbit/s) and VDSL

(up to 50 Mbit/s) services to support provision of multiple pay-

TV set-top boxes in the home or commercial premises, as

well as the 2007 launch of a high definition TV (HDTV) service,

following trials among PCCW staff and some customers. In

fact, about one-third of all English Premier League football

action for the next three seasons will be screened in HDTV

format by now TV.

PCCW Global

A little over a year after launch, PCCW Global has been able to

report double-digit growth in operations that serve enterprise

and wholesale markets, as well as successful rationalisation

in pursuit of greater profitability. Created by the merging of the

international section of PCCW’s Commercial Group and BtN

Access Group in 2005, PCCW Global enables organisations

to bring their business to Asia, run operations across

Greater China and other parts of the region and take Asian

business to the rest of the world. The unit serves multinational

corporations and large enterprises, as well as carriers, with

a portfolio of integrated global communications solutions

from its presence in the Americas, Europe, the Middle East,

Africa and Asia. PCCW Global and China Telecom Group

announced a milestone agreement in May last year when

they launched the first International Ethernet Private Line

service providing high bandwidth connectivity between



Hong Kong and mainland China. The move was welcomed

by Chinese enterprises expanding across the region, as well

as multinational corporations moving into mainland China.

The unit also generated revenue by assisting enterprises to

migrate from legacy networks to IP-based NGN technology,

while the volume of traffic carried on PCCW Global’s own

worldwide IP network doubled in 2006.

MoBiLe

Launched in early 2006, PCCW mobile has made immense

progress in a short space of time to become a leading market

brand in innovation and quality of service. This new chapter in

the PCCW story began in the summer of 2005 when PCCW

acquired a controlling stake in SUNDAY Communications

Limited (SUNDAY) – including its operating subsidiaries – which

became a full member of the PCCW Group in December 2006.

A 3G trial early last year led to the launch of PCCW mobile

and a rapid succession of exciting new services, beginning

with the world’s first handset screening of real-time TV using

Cell Multimedia Broadcast technology. Under the name “now

on mobile”, six news and sports channels from the now TV

platform became available to busy mobile users on the move,

followed by another seven channels of infotainment in early

2007 and exclusive agreements to screen live world class

soccer action. This was the first major signal to the market

that PCCW’s quadruple-play capability would transform

everyday digital lifestyles in Hong Kong. More media content

soon became available to PCCW mobile subscribers when

PCCW saw the opportunity to take the Moov online music

service to 3G handsets with the launch of “Moov on mobile”

in December last year. This breakthrough service extended

Hong Kong’s largest digital music library of 60,000 songs

and music videos to mobile phones via advanced streaming

technology, with no downloading necessary.

Served by the SUNDAY brand, PCCW’s 2G customer base

grew substantially in 2006 when most local operators were

losing market share. Even though PCCW’s Mobile business

unit did not begin transforming 3G trial users into paying

customers until partway through 2006, the overall mobile

customer base grew 25% – from a total of 738,000 subscribers

at the end of 2005 to 921,000 by the end of last year. During

the first half of 2006, PCCW mobile worked hard to upgrade




its 3G network coverage by investing significantly in network

quality and performance. Then, in the second six months of

last year, the unit mounted a marketing campaign to raise the

profile of the brand and create a buzz in the market based on

PCCW’s quadruple-play proposition, new services and user-

friendly tariff plans.

tv & Content

By the end of 2006, now TV – the largest pay-TV operation

of its kind in the world – had generated in excess of 750,000

subscriptions in a little over three years, during which time the

lineup of content increased from 23 to more than 125 channels.

As well as adding an innovative home-shopping channel to

now TV’s interactive services last year, PCCW scored some

major successes in harnessing the enormous pulling power of

world-class soccer. Kicking off in September last year, now

TV provides three seasons of exclusive UEFA Champions

League coverage, making all the live action available to fans on

ESPN and STAR Sports and to NETVIGATOR subscribers by

simulcast via the now.com.hk portal. Viewers are also able to

enjoy matches to suit their own schedules from now Select’s

interactive videoon- demand service, offering unprecedented

flexibility. In November, PCCW achieved a highly significant

goal by winning exclusive Hong Kong rights to broadcast the

most comprehensive live coverage of English Premier League

(“EPL”) action for three seasons beginning 2007/08, featuring

a total of 370 matches on now TV. Matches are simulcast by

PCCW’s innovative “now on mobile” service and now.com.

hk NETVIGATOR portal. The EPL coup was closely followed

by the announcement that exclusive Hong Kong rights will

enable PCCW to broadcast the UEFA Euro 2008TM football

tournament – Europe’s most important soccer event – on

multiple platforms. Made possible by PCCW’s quadruple-

play capability, the move means soccer lovers will be able to

enjoy UEFA Euro action live on now TV and by choosing an

already-played match from now Select’s interactive video-on-

demand service. Fans will also be able to watch games by

Internet simulcast from NETVIGATOR’s now.com.hk portal,

as well as on their handsets via PCCW mobile. The TV &

Content team increased marketing efforts last year to enable

now TV customers to get the best out of the sheer scale of



2�Pacific Century Regional Developments Limited Annual Report 2006

choice and quality contained by more than 125 channels. A

significant move in the media-delivery space last year saw

PCCW’s creation of the Moov online music library service

offering Cantonese and international songs and music videos.

The service won the backing of 90% of the world’s major

record companies, which were keen to see music delivered to

subscribers legally, via the Internet, using advanced streaming

technology. Within just six months, Moov had become so

popular that more than 20 million streams had been delivered

to customers.

PCCw soLutions

Operating as the Group’s ICT flagship, PCCW Solutions

focused on outsourcing during 2006 after technology solutions

devised for bespoke projects in previous years achieved tried-

and-tested maturity and became ready for deployment to

meet similar requirements. Continuing a tradition of helping

to build Hong Kong’s global image as a world-class “digital

city”, PCCW Solutions embarked on a number of large-scale

Hong Kong Government projects last year. In early 2006, for

example, the unit was awarded an eight-year contract by

the Treasury of the Hong Kong Government for the design,

build, installation and maintenance of a Government Financial

Management Information System to connect 5,400 users and

support accounting and financial management processes. Two

further 10-year contracts were awarded to ensure the smooth

running of systems central to the Hong Kong Government’s

Civil Aviation Department and Marine Department, while

another 10-year contract was clinched to develop and maintain

the leading-edge Electronic Passport System (e-PASS) for

the Hong Kong Government’s Immigration Department.

In addition, a contract with the Hong Kong Government’s

Transport Department will result in a Transport Information

System to centralise transport and traffic data.

otheR Businesses

The new Advertising & Interactive Services business unit

formed in early 2007 boosts PCCW’s power to capitalise on

synergies between existing advertising offerings and PCCW’s

capability to deliver media content and transactional services




on TV, Internet, mobile and fixed-line platforms, as well as

via traditional printed directory-based products. Advertising

potential held by now TV’s 125-plus channels, coupled

with an ideal viewership profile for advertisers, positioned

PCCW well in 2006 to sell traditional TV advertising slots and

sponsorships. For three seasons beginning 2007/08, however,

extremely popular English Premier League soccer action

shown exclusively on now TV – plus PCCW’s ability to carry

the same advertising content on other platforms – sets the

scene for new revenue opportunities. PCCW’s dual-platform

TV offering, formed by now TV and PCCW mobile, has

already broken down traditional “one-way push” advertising

barriers by offering a full range of interactive information and

transactional services.

As part of the new Advertising & Interactive Services business

unit, PCCW Directories continues to offer highly effective

advertising solutions, primarily to small and medium-sized

businesses via traditional print directories and specialised

catalogues. PCCW Directories has also harnessed PCCW’s

quadruple-play capability to provide small and medium-sized

businesses with interactive services on multiple platforms.

Year 2006 saw PCCW laying the groundwork for a full range

of advertising, interactive advertising and transactional

services via multiple delivery platforms and has set the scene

for further development.

PCCW Directories

By forming partnerships with online giants Google, eBay

Hong Kong, SINA Hong Kong and Yahoo! Hong Kong, PCCW

Directories has opened up a global market for Hong Kong

enterprises via an online marketing operation that serves the

business community alongside the popular Internet Yellow

Pages (IYP) service. Hong Kong traders and manufacturers

are now finding customers in markets as far flung as the

US and the UK, as well as locally, thanks to one-stop-shop

Internet-based services that enjoyed double-digit growth in

2006 and now account for one-third of total annual business

income for PCCW Directories. In addition to a growing online

business, PCCW Directories published 1.8 million paper-based

directories and supplements last year and opened up a whole

new opportunity for the business unit by taking Yellow Pages

to mobile phones. Users are now able to perform keyword

searches via Mobile Yellow Pages (MYP) to find retailers and

suppliers, as well as to enjoy discounts and privileges from

some 10,000 participating outlets by downloading a special




MYP Card to carry in their handsets. Not yet a year old, MYP

is already so sophisticated that a Location Based System built

into the solution detects where in Hong Kong a user happens to

be while conducting a keyword search and lists the 10 nearest

merchants or suppliers. By the end of 2006, some 150,000

mobile phone users were enjoying the benefits of MYP, while

helping to stimulate the Hong Kong retail economy – marking

a milestone development in the Yellow Pages journey from

paper to Internet to mobile handsets.

REACH

A 50:50 joint venture between PCCW and Australia’s

Telstra Corporation Limited (Telstra), REACH addresses the

international service requirements of PCCW and Telstra via

the operation and management of one of the most diverse,

high-speed networks in Asia. REACH is also the region’s

premier provider of international voice and satellite services

and one of the world’s largest carriers of international voice

traffic, according to the TeleGeography communications

industry research and analysis company.

UK Broadband

Branded now (www.now.com), PCCW’s wireless broadband

business in the United Kingdom (UK) consolidated operations

and kept investment costs to a minimum last year, while

continuing to review strategic technology options and build

value around its radio spectrum rights. Launched in the UK’s

Thames Valley in May 2004, the service expanded into areas

of London under the now brand in 2005 and covered more

than half-a-million homes by the end of 2006.




oFFeRinG eMinent PReMiuM sPaCes

Catering to demand for premium residential and commercial properties,

our Group’s development projects focus on quality and functionality. Be it

enhancing distinguished lifestyles or supporting thriving business activities, we

consistently offer excellent quality that surpasses market expectations.

P r o p e r t y & i n f r a s t r u c t u r e



Property & infrastructure

PCCw inFRastRuCtuRe

Majority owned by PCCW, Pacific Century Premium Developments Limited (PCPD) is engaged principally in the development and management of premium property and infrastructure projects, as well as investment in premium grade buildings in the Asia-Pacific region.

PCPD’s property development activities include the Cyberport project. Developed on the southern shore of Hong Kong island, the Cyberport project comprises a million square feet on office space, 4.5 million square feet of prime residential real estate, 300,000 square feet of retail premises and a 173-room Le Meridien Hotel.

The residential portion of the Cyberport project, known as Residence Bel-Air, continues to be the PCPD’s leading driver of success by spearheading the high-end residential property sector in terms of architecture, design and service quality.

Co-operation between PCCW and PCPD to redevelop a number of telephone exchange buildings in Hong Kong has continued to make good progress. The Wo Fung Street project to build prestigious residential apartments in Sheung Wan will create approximately 150 upmarket units by 2009. Development work is currently on schedule and pre-sales are expected by the end of 2007.

PCPD owns a premium-grade investment building, Pacific Century Place, in Beijing city centre which was originally developed by PCRD. With a gross floor area of more than 169,900 square metres, this multiple-use development is currently home to many multinational corporations, world-

class retailers and residential tenants. Demand for office and retail space is expected to increase, given mainland China’s strengthening economy and the accelerating pace of corporate expansion. Pacific Century Place enjoyed an average occupancy rate of 95 per cent during 2006. A number of upgrading works are scheduled for completion by 2009.

Development work on the PCPD’s prestigious residential project next to Pacific Century Place, located at No.4 Gong Ti Bei Lu, Chaoyang District, Beijing, will commence in 2007. This project has an approved gross floor area of approximately 46,300 square metres and is planned for completion in 2009. Project quality standards are expected to surpass those currently available in Beijing.

vietnaM

Chancery Saigon Hotel, Ho Chi Minh CityThe performance of this 96-suite hotel has continued to improve in recent years, despite being in a very competitive market. Good control of operational costs and maintenance of high service standards have contributed to improvements in profitability and increased cash generation. Room occupancy has also improved through active marketing.

inDia

Fort House, MumbaiLocated in central Mumbai, Fort House is a unique international Grade-A office building occupying over 100,000 square feet of floor area on ten levels. The building has near full occupancy with prestigious international financial institutions as tenants.



Financial highlights

ConDenseD ConsoLiDateD inCoMe stateMent inFoRMationFor the year ended 31 December

Group 2006 2005 $’000 $’000

Continuing operations

Turnover 410,902 444,242 Operating profit 69,802 7,376 Profit before tax 79,907 25,756

Discontinued operations

Profit net of tax 146 142

attributable to equity holders of the Company

Profit after tax and minority interest 41,436 15,458

Per share Data

Earnings per share (Singapore cents) 1.34 0.50



Financial highlights

ConDenseD ConsoLiDateD BaLanCe sheet inFoRMationAs at 31 December

Group 2006 2005 $’000 $’000

Non-current assets 1,103,581 1,167,042Current assets 1,304,351 1,129,572Total assets 2,407,932 2,296,614Current liabilities (891,017) (696,054)Non-current liabilities (1,652,238) (1,778,644)Net liabilities (135,323) (178,084)

Represented by:

Share capital 457,283 309,627Share premium – 146,286Deficit (882,387) (934,486)Minority interests 289,781 300,489Net liabilities (135,323) (178,084)

attributable to equity holders of the Company

Net liabilities (135,323) (178,084)

Per share Data

Net tangible assets per share (Singapore cents) (14) (15)



Corporate information

BoaRD oF DiReCtoRsRichard Li tzar KaiChairman

Francis Yuen tin FanDeputy Chairman

Peter a. allenGroup Managing Director

alexander anthony arena

Chng hee Kok

Gordon seow Li-Ming

tom Yee Lat shing

exeCutive CoMMitteealexander anthony arenaChairman

Richard Li tzar Kai

Francis Yuen tin Fan

Peter a. allen

Gordon seow Li-Ming

noMinatinG CoMMitteeGordon seow Li-MingChairman

Peter a. allen

alexander anthony arena

Chng hee Kok

tom Yee Lat shing

auDit CoMMitteetom Yee Lat shingChairman

Chng hee Kok

Gordon seow Li-Ming

ReMuneRation CoMMitteeChng hee KokChairman

Gordon seow Li-Ming

tom Yee Lat shing

CoMPanY seCRetaRYLim Beng Jin

ReGisteReD oFFiCe6 Battery Road #38-02Singapore 049909Tel : (65) 6438 2366Fax : (65) 6230 8777

auDitoRsernst & Young

auDit PaRtneRshekaran Krishnan

shaRe ReGistRaRLim associates (Pte) Ltd3 Church Street#08-01 Samsung HubSingapore 049483

CoMPanY ReGistRation no.196300381N



Contents

30 Directors’ Report

35 Statement by Directors

36 Independent Auditors’ Report

37 Consolidated Profit and Loss Account

38 Balance Sheets

40 Statements of Changes in Equity

42 Consolidated Statement of Cash Flows

44 Notes to the Financial Statements

Financial statements



The Company’s Directors are pleased to present their report to members together with the audited consolidated financial statements of Pacific Century Regional Developments Limited (the “Company”) and its subsidiary companies (collectively, the “Group”) and the balance sheet and statement of changes in equity of the Company for the financial year ended 31 December 2006.

DiReCtoRs

The Directors of the Company in office at the date of this report are:

Richard Li Tzar Kai ChairmanFrancis Yuen Tin Fan Deputy Chairman Peter A. Allen Group Managing Director (w.e.f. 1 November 2006)Alexander Anthony ArenaChng Hee KokGordon Seow Li-MingTom Yee Lat Shing

The following Directors who held office at the end of the year had, according to the register of directors’ shareholdings required to be kept under Section 164 of the Singapore Companies Act, Cap. 50, an interest in the Company and other related corporations (other than wholly-owned subsidiaries) as stated below:

Holdings registered in the Holdings in which names of Directors and Directors are deemed their immediate families to have an interestname of Director At 1.1.2006 At 31.12.2006 At 1.1.2006 At 31.12.2006

the Company ordinary shares ordinary shares

Richard Li Tzar Kai (a) – – – 28,167,000Peter A. Allen 5,010,000 5,010,000 – – Gordon Seow Li-Ming 40,000 20,000 – –

Pacific Century insuranceHoldings Limited (“PCiH”) ordinary shares of HK$1 each ordinary shares of HK$1 each

Richard Li Tzar Kai (b) – – 2,000,000 2,000,000Peter A. Allen 360,000 360,000 – – Francis Yuen Tin Fan (c) – – 21,204,800 21,204,800

Notes:

(a) Richard Li Tzar Kai is deemed to be interested in 28,167,000 shares of the Company held by a fund whose units of shares are held by companies ultimately controlled by Richard Li Tzar Kai.

(b) Richard Li Tzar Kai is deemed to be interested in 2,000,000 shares in PCIH held by Pacific Century Diversified Limited, a wholly-owned subsidiary of Chiltonlink Limited, which is 100% owned by Richard Li Tzar Kai.

(c) These shares are held under the T.F. Yuen Trust, a discretionary trust of which Francis Yuen Tin Fan is a founder.

Directors’ Report



DiReCtoRs (Cont’D) Held in the name of Directorsname of Director At 1.1.2006 At 31.12.2006 options to subscribe for the Company ordinary shares

Alexander Anthony Arena 15,300,000 (a) 15,300,000 (a) options to subscribe for PCiH ordinary shares of HK$1 each

Peter A. Allen 480,000 (b) 360,000 (b)Francis Yuen Tin Fan 15,552,000 (b) 11,664,000 (b) Except as stated above, no other Director who held office at the end of the financial year had an interest in shares or debentures of the Company or its related corporations. There was no change in any of the above mentioned interests between the end of the financial year and 21 January 2007. With the exception of the Company’s Employees’ Share Option Scheme (“ESOS Scheme”) for employees of the Group, neither at the end of the financial year, nor at any time during that year, did there subsist any arrangements, to which the Company is a party, whereby Directors might acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate.

Since the end of the previous financial year, no Director has received or has become entitled to receive benefits under contracts required to be disclosed by Section 201(8) of the Singapore Companies Act, Cap. 50.

Options to subscribe for ordinary shares in the Company

(a) These options are exercisable at $0.7584 as follows:

number of options exercise period

1/5 of the options 25 October 2001 to 24 October 2002 2/5 of the options 25 October 2002 to 24 October 2003 3/5 of the options 25 October 2003 to 24 October 2004 4/5 of the options 25 October 2004 to 24 October 2005 All of the options 25 October 2005 to 24 October 2009 Options to subscribe for shares of HK$1 each in PCIH

(b) These options are exercisable at HK$5.233 and may be exercised from 7 July 2000 to 6 July 2009.

Directors’ Report



sHARe CAPitAL AnD sHARe oPtions oF tHe ComPAny

During the financial year:

(a) no share options were granted in respect of the share capital of the Company; and

(b) 200,000 share options were cancelled.

Options granted to executive and non-executive Directors under the ESOS Scheme

Aggregate Aggregate Aggregate options options options cancelled/ granted since exercised since expired since Aggregate options commencement commencement commencement options granted of scheme of scheme of scheme outstanding as during the to end of to end of to end of at the end of financial year financial year financial year financial year financial year name of Director under review under review under review under review under review

Peter A. Allen – 5,000,000 5,000,000 – – Alexander Anthony Arena – 15,300,000 – – 15,300,000Chng Hee Kok – 1,000,000 – 1,000,000 – Tom Yee Lat Shing – 1,200,000 – 1,200,000 – Gordon Seow Li-Ming – 1,000,000 – 1,000,000 – Total unissued shares of the Company under the ESOS Scheme are as follows:

options subscription cancelled price per options at during options at ordinary exercise Date of grant 1.1.2006 the year 31.12.2006 share period

25.10.1999 3,600,000 200,000 3,400,000 $0.7584 (a)25.10.1999 15,300,000 – 15,300,000 $0.7584 (b) 18,900,000 200,000 18,700,000

The exercise periods for the share options of the Company are as follows:

number of options exercise period

(a) 3,400,000 options 1/3 of the options 25 October 2001 to 24 October 2002 2/3 of the options 25 October 2002 to 24 October 2003 All of the options 25 October 2003 to 24 October 2009 (b) 15,300,000 options 1/5 of the options 25 October 2001 to 24 October 2002 2/5 of the options 25 October 2002 to 24 October 2003 3/5 of the options 25 October 2003 to 24 October 2004 4/5 of the options 25 October 2004 to 24 October 2005 All of the options 25 October 2005 to 24 October 2009

Since the commencement of the ESOS Scheme, no options have been granted to the controlling shareholders of the Company or their associates, employees of the holding company or its related companies and no participant under the ESOS Scheme has been granted 5% or more of the total options available under the ESOS Scheme.

Directors’ Report



AuDit Committee

The audit committee (the “Committee”) carried out its functions in accordance with section 201B(5) of the Singapore Companies Act, Cap. 50, including the following:

1. Review the independence of external auditors and recommend to the Board of Directors whether the external auditors be re-appointed.

2. Review with management, upon finalisation and prior to publication, the financial results for each quarter, half-year and full year.

3. Review interested person transactions and the adequacy of the Company’s internal control procedures in relation to interested person transactions.

4. Review compliance with accounting standards, all relevant laws, the Listing Rules of the Singapore Exchange Securities Trading Limited (“SGX-ST”) and the Code of Corporate Governance issued by the SGX-ST.

5. Review any changes during the year in accounting principles or their application.

6. Review significant adjustments proposed by the external auditors.

7. Review the audit plans of the external auditors of the Company and ensure the adequacy of the system of accounting controls and the co-operation given by the management.

8. Review with the Company’s management the adequacy of the Company’s internal controls in respect of management and business practices and review with management and external auditors significant accounting and auditing issues.

9. Report to the Board or relevant authorities any suspected fraud or irregularity, or failure of internal controls or suspected infringement of any relevant Singapore law or other regulation, which has or is likely to have a material impact on the Company’s operating results.

The Committee has reviewed all non-audit services provided by the external auditors and is satisfied that the nature and extent of such non-audit services would not affect the independence of the external auditors.

Pursuant to the requirements of the SGX-ST, the Committee reviewed the SGX-ST requirements for the approval and disclosure of interested person transactions. The Committee has also reviewed the procedures set up by the Company to identify and report and where necessary, to seek the appropriate approval for interested person transactions.

The Committee convened five meetings during the year with full attendance from all members, except for one occasion when one member was absent. The Committee has also met with external auditors, without the presence of the Company’s management, at least once a year. Further details regarding the Committee are disclosed in the Report on Corporate Governance.

Directors’ Report



AuDitoRs

The auditors, Ernst & Young, will retire at the forthcoming Annual General Meeting of Pacific Century Regional Developments Limited and will not be seeking re-appointment due to their internal rules regarding audits of subsidiaries and associates. The Board has nominated PricewaterhouseCoopers for apppointment at the forthcoming Annual General Meeting.

On behalf of the Board,

Francis Yuen Tin FanDeputy Chairman

Peter A. AllenGroup Managing Director

Singapore30 March 2007

Directors’ Report



statement by Directors Pursuant to Section 201(15)

We, Francis Yuen Tin Fan and Peter A. Allen, being two of the Directors of Pacific Century Regional Developments Limited, do hereby state that, in the opinion of the Directors:

(i) the accompanying balance sheets, consolidated profit and loss account, statements of changes in equity, and consolidated cash flow statement together with notes thereto are drawn up so as to give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2006 and the results of the business, changes in equity and cash flows of the Group and the changes in equity of the Company for the year ended on that date, and

(ii) at the date of this statement, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due.

On behalf of the Board,

Francis Yuen Tin FanDeputy Chairman

Peter A. AllenGroup Managing Director




independent Auditors’ Report To the Members of Pacific Century Regional Developments Limited

We have audited the accompanying financial statements of Pacific Century Regional Developments Limited (the “Company”) and its subsidiary companies (collectively, the “Group”) set out on pages 37 to 115, which comprise the balance sheets of the Group and the Company as at 31 December 2006, the statements of changes in equity of the Group and the Company, and the profit and loss account and cash flow statement of the Group for the year then ended, and a summary of significant accounting policies and other explanatory notes.

DiReCtoRs’ ResPonsibiLity FoR tHe FinAnCiAL stAtements

The Company’s Directors are responsible for the preparation and fair presentation of these financial statements in accordance with the provisions of the Singapore Companies Act, Cap. 50 (the “Act”) and Singapore Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

AuDitoRs’ ResPonsibiLity

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

oPinion

In our opinion,

(i) the consolidated financial statements of the Group, and the balance sheet and statement of changes in equity of the Company are properly drawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2006 and the results, changes in equity and cash flows of the Group and the changes in equity of the Company for the year ended on that date; and

(ii) the accounting and other records required by the Act to be kept by the Company and by those subsidiary companies incorporated in Singapore of which we are the auditors have been properly kept in accordance with the provisions of the Act.

ERNST & YOUNGCertified Public Accountants




note 2006 2005 $’000 $’000

Continuing operations Turnover 3 410,902 444,242Cost of sales 4 (130,807) (166,651)Gross profit 280,095 277,591Investment income, net gains, and other income 5 192,015 81,909Operating and administrative expenses – Insurance business (388,746) (329,809)– Other businesses (13,562) (22,315)Profit from operating activities 6 69,802 7,376 Finance costs 7 (54,836) (67,265)Change in carrying value of associated companies: – Share of profits in associated companies 57,015 77,506– Gain on deemed dilution 7,926 8,139Profit from continuing operations before taxation 79,907 25,756Taxation 8 (3,675) (5,386)Profit from continuing operations after taxation 76,232 20,370 Discontinued operations Profit from discontinued operations, net of tax 9 146 128Profit for the year 76,378 20,498

Attributable to: Equity holders of the Company 41,436 15,458Minority interests 34,942 5,040 76,378 20,498 Continuing operationsEarnings per share (Singapore cents) 10 – basic 1.34 0.50– fully diluted 1.34 0.50 Discontinued operations Earnings per share (Singapore cents) 9 – basic 0.00 0.00– fully diluted 0.00 0.00

Consolidated Profit and Loss Account For the year ended 31 December 2006

(in singapore dollars)

The accompanying accounting policies and explanatory notes form an integral part of these financial statements.



balance sheets As at 31 December 2006


Group Company note 2006 2005 2006 2005 $’000 $’000 $’000 $’000

non-current assetsProperty, plant and equipment 11 12,637 48,762 – – Investments in subsidiary companies 12 – – 192,860 209,718Investments in associated companies 13 40,028 51,068 956,838 1,040,477Intangibles 14 227,362 223,035 – – Investment properties 15 4,535 3,578 – – Long-term investments 16 733,568 758,222 1,077 1,119Pledged time deposits 17 6,822 3,385 – – Deferred tax assets 18 1,037 – – – Other assets 19 77,592 78,992 29,862 30,269 1,103,581 1,167,042 1,180,637 1,281,583

Current assetsIntangibles 14 58,201 61,508 – – Short-term investments 20 600,996 667,255 – – Derivative financial instruments 21 1,094 2,185 – – Inventories 22 20 24 – – Trade and other receivables 23 106,213 78,342 9,614 12,877Fixed deposits 37 415,323 50,896 19,424 1,127Cash and bank balances 37 110,826 256,515 584 359 1,292,673 1,116,725 29,622 14,363Assets classified as held-for-sale 9 11,678 12,847 – – 1,304,351 1,129,572 29,622 14,363

Current liabilitiesTrade payables and accruals 24 106,308 86,265 288,027 11,245Deposits received 25 14,533 17,263 – – Bank borrowings 26 758,906 299,998 473,430 299,998Provision for taxation 7,443 5,990 1,455 701Exchangeable bonds 27 – 281,893 – 281,893 887,190 691,409 762,912 593,837Liabilities directly associated with assets held-for-sale 9 3,827 4,645 – – 891,017 696,054 762,912 593,837

net current assets/(liabilities) 413,334 433,518 (733,290) (579,474)



Group Company note 2006 2005 2006 2005 $’000 $’000 $’000 $’000

non-current liabilities Derivative financial instruments 21 6,288 712 – – Long-term liabilities 28 152,385 402,404 – 237,309Policyholders’ dividends and bonuses 29 180,750 165,851 – – Future insurance liabilities – investment contracts 30 159,579 117,524 – – – insurance contracts 31 1,147,205 1,085,581 – – Deferred tax liabilities 32 5,950 6,471 5,950 6,471Other liabilities 33 81 101 133,186 133,350 (1,652,238) (1,778,644) (139,136) (377,130)net (liabilities)/assets (135,323) (178,084) 308,211 324,979

equity attributable to equity holders of the Company Share capital 34 457,283 309,627 457,283 309,627Share premium – 146,286 – 146,286Deficit (882,387) (934,486) (149,072) (130,934) (425,104) (478,573) 308,211 324,979Minority interests 289,781 300,489 – – total equity (135,323) (178,084) 308,211 324,979

balance sheets As at 31 December 2006





statements of Changes in equityFor the year ended 31 December 2006


Attributable to equity holders of the Company share other capital share Revenue Reserves total minority total (note 34) premium reserves (note 36) reserves interests equity $’000 $’000 $’000 $’000 $’000 $’000 $’000

Group Balance at 1 January 2005 309,627 146,286 (976,148) (5,296) (981,444) 287,889 (237,642)

Exchange translation adjustment – – – 7,770 7,770 (15,357) (7,587)Fair value gain on available-for-sale investments – – – 23,615 23,615 21,394 45,009Fair value change on cash flow hedge – – – (94) (94) (107) (201)Movement in equity component of convertible notes and bonds – – – (931) (931) – (931)Change in interest in a subsidiary – – (1,257) 347 (910) 10,747 9,837Net (expenses)/income recognised directly in equity – – (1,257) 30,707 29,450 16,677 46,127Profit for the year – – 15,458 – 15,458 5,040 20,498Total income recognised for the year – – 14,201 30,707 44,908 21,717 66,625Equity share compensation reserve – – – 2,050 2,050 1,017 3,067Dividends paid by a subsidiary – – – – – (10,134) (10,134)Balance at 31 December 2005 309,627 146,286 (961,947) 27,461 (934,486) 300,489 (178,084)

Balance at 1 January 2006 309,627 146,286 (961,947) 27,461 (934,486) 300,489 (178,084) Exchange translation adjustment – – – 45,277 45,277 (23,937) 21,340Fair value change on available-for-sale investments – – – (6,298) (6,298) (7,674) (13,972)Fair value change on cash flow hedge – – – (22,830) (22,830) (3,193) (26,023)Movement in equity component of convertible notes and bonds – – – 40 40 – 40Change in interest in a subsidiary – – (2,924) 1,235 (1,689) (4,073) (5,762)Net (expenses)/income recognised directly in equity – – (2,924) 17,424 14,500 (38,877) (24,377)Profit for the year – – 41,436 – 41,436 34,942 76,378Total income/(expenses) recognised for the year – – 38,512 17,424 55,936 (3,935) 52,001Equity share compensation reserve – – – (2,467) (2,467) (380) (2,847)Dividends paid by a subsidiary – – – – – (6,393) (6,393)Transfer to share capital 147,656 (146,286) – (1,370) (1,370) – – Balance at 31 December 2006 457,283 – (923,435) 41,048 (882,387) 289,781 (135,323)



share other capital share Revenue Reserves total total (note 34) premium reserves (note 36) reserves equity $’000 $’000 $’000 $’000 $’000 $’000

CompanyBalance at 1 January 2005 309,627 146,286 (113,389) 1,370 (112,019) 343,894

Exchange translation adjustment – – – (4,557) (4,557) (4,557)Fair value loss on available-for-sale investments – – – (400) (400) (400)Net expense recognised directly in equity – – – (4,957) (4,957) (4,957)Loss for the year – – (13,958) – (13,958) (13,958)Total expense recognised for the year – – (13,958) (4,957) (18,915) (18,915)Balance at 31 December 2005 309,627 146,286 (127,347) (3,587) (130,934) 324,979

Balance at 1 January 2006 309,627 146,286 (127,347) (3,587) (130,934) 324,979

Exchange translation adjustment – – – (26,527) (26,527) (26,527)Fair value loss on available-for-sale investments – – – (44) (44) (44)Net expense recognised directly in equity – – – (26,571) (26,571) (26,571)Profit for the year – – 9,803 – 9,803 9,803Total income/(expense) recognised for the year – – 9,803 (26,571) (16,768) (16,768)Transfer to share capital 147,656 (146,286) – (1,370) (1,370) – Balance at 31 December 2006 457,283 – (117,544) (31,528) (149,072) 308,211

statements of Changes in equityFor the year ended 31 December 2006





Consolidated statement of Cash FlowsFor the year ended 31 December 2006


2006 2005 $’000 $’000

Cash flow from operating activities: Profit from operating activities 69,802 7,376Profit before tax from discontinued operations (note 9) 146 142 69,948 7,518Adjustments for: Amortisation of deferred acquisition costs 61,660 61,395 Depreciation of property, plant and equipment 3,758 3,774 Gain on disposal of property, plant and equipment (3,110) (130) Gain on sale and revaluation of investments (116,539) (16,785) Equity-settled share option expenses 791 1,916 Write-back of provision for associated companies – (13,300) Gain on fair value adjustments of investment properties (367) (286) Impairment loss of an available-for-sale financial asset (transfer from equity) 1,605 –operating profit before reinvestment in working capital 17,746 44,102Increase/(decrease) in payables and accruals 16,957 (2,105)(Increase)/decrease in receivables and premiums receivable (60,938) 455Decrease in inventories 4 2Cash (used in)/generated from operations (26,231) 42,454Interest received 63,048 1,197Interest and other finance costs paid (92,698) (78,051)Income taxes paid (9,250) (7,977)net cash used in operating activities (65,131) (42,377)

Cash flow from investing activities: Proceeds from disposal of property, plant and equipment 40,418 209Increase in intangibles (83,653) (64,746)Decrease/(increase) in investment properties, long-term available-for-sale investments, properties held for sale and other investments 19,544 (85,283)Purchase of interest in a subsidiary company – (7,295)Purchase of property, plant and equipment (8,424) (4,544)Repayment of insurance business loans (3,456) (7,800)Increase in pledged time deposits (3,437) (3,385)net cash used in investing activities (39,008) (172,844)



2006 2005 $’000 $’000

Cash flow from financing activities: Drawdown of bank loans, net 458,889 260,020Repurchase of shares by a subsidiary company (12,968) (3,877)Issue of new shares by a subsidiary company 6,067 1,335Increase in insurance funds 228,176 175,539Increase/(decrease) in long-term liabilities 5,633 (2,857)Dividend from associated companies 57,568 52,681Loan repayment to holding company (237,309) – Redemption of exchangeable bonds (237,720) (330,062)Dividend paid by subsidiary company (6,393) (10,134)net cash generated from financing activities 261,943 142,645 Exchange translation adjustment 60,934 64,422 Net increase/(decrease) in cash and cash equivalents 218,738 (8,154)Cash and cash equivalents at beginning of year 307,411 315,565Cash and cash equivalents at end of year, note 37 526,149 307,411

Consolidated statement of Cash FlowsFor the year ended 31 December 2006





notes to the Financial statements31 December 2006


1. CoRPoRAte inFoRmAtion Pacific Century Regional Developments Limited (the “Company”) is incorporated in Singapore as a limited liability

company. The registered office and principal place of business of the Company is located at 6 Battery Road, #38-02, Singapore 049909.

The immediate holding company of the Company is Pacific Century Group (Cayman Islands) Limited, which is incorporated in the Cayman Islands. The ultimate holding company is OS Holdings Limited (“OSH”), which is incorporated in Bermuda.

The Company and its subsidiary companies are engaged in a range of businesses including the provision of a range of whole life, endowment, term life insurance and other related products in Hong Kong and investment in and development of infrastructure and properties.

Group companies are set out in note 44. Related companies in these financial statements refer to companies in the OSH group of companies. Unless otherwise stated, related parties refer to companies related to a substantial shareholder of the Company.

2. summARy oF siGniFiCAnt ACCountinG PoLiCies

2.1 Basis of preparation The consolidated financial statements of the Group and the balance sheet and statement of changes in equity of the Company

have been prepared in accordance with Singapore Financial Reporting Standards (“FRS”) as required by the Singapore Companies Act, Cap. 50.

The financial statements have been prepared on a historical cost basis except for investment properties, derivative financial instruments and investment securities that have been measured at their fair values.

The financial statements of the Company have been prepared on a going concern basis despite its net current liabilities position, based on the Company’s cash flow projection for the year ending 31 December 2007.

The carrying values of recognised assets and liabilities that are designated as hedged items in a fair value hedge are adjusted to record the gain or loss on the hedged items attributable to the hedged risks.

The financial statements are presented in Singapore dollars (SGD or $) and all values are rounded to the nearest thousand ($’000) except when otherwise indicated.





2. summARy oF siGniFiCAnt ACCountinG PoLiCies (Cont’D)

2.2 Changes in accounting policies

Accounting policies have been consistently applied by the Group and the Company and are consistent with those in the previous financial year, except for the changes in accounting policies discussed below.

Adoption of revised FRS The Group and the Company have adopted the revised FRS that became effective for the financial years beginning on or after 1 January 2006. The adoption of these FRS did not result in any significant change in the Group’s and Company’s accounting policies:

(i) Amendment to FRS 39 – The Fair Value Option This amendment has changed the definition of a financial instrument classified as fair value through profit or loss and

has restricted the use of the option to designate any financial asset or financial liability to be measured at fair value through profit or loss.

(ii) Amendment to FRS 39 – Financial Guarantee Contracts

The amendment requires financial guarantee contracts issued that are not considered insurance contracts, to be recognised initially at fair value and to be subsequently measured at (a) the higher of the amount determined in accordance with FRS 37 Provisions, Contingent Liabilities and Contingent Assets; and (b) the amount initially recognised less, where appropriate, cumulative amortisation recognised in accordance with FRS 18 Revenue.

2.3 FRS and Interpretation of Financial Reporting Standards (“INT FRS”) not yet effective The Group and the Company have not applied the following FRS and INT FRS which have been issued but which are not

yet effective:

effective date (annual periods beginning on or after) FRS 1 : Amendment to FRS 1 (revised), Presentation of Financial Statements 1 January 2007 (Capital Disclosures) FRS 107 : Financial Instruments: Disclosures 1 January 2007 FRS 108 : Operating Segments 1 January 2009 INT FRS 107 : Applying the Restatement Approach under FRS 29, Financial Reporting 1 March 2006 in Hyperinflationary Economies INT FRS 108 : Scope of FRS 102, Share-based Payment 1 May 2006 INT FRS 109 : Reassessment of Embedded Derivatives 1 June 2006 INT FRS 110 : Interim Financial Reporting and Impairment 1 November 2006 INT FRS 111 : Group and Treasury Share Transactions 1 March 2007 INT FRS 112 : Service Concession Arrangements 1 January 2008 The directors expect that the adoption of the above pronouncements will have no material impact to the financial

statements in the period of initial application, except for the amendment to FRS 1 (revised) and FRS 107, as indicated below.






2.3 FRS and Interpretation of Financial Reporting Standards (“INT FRS”) not yet effective (cont’d)

Amendment to FRS 1 (revised), Presentation of Financial Statements (Capital Disclosures)

The amendment to FRS 1 requires the Group to make new disclosures to enable users of the financial statements to evaluate the Group’s objectives, policies and processes for managing capital. The Group will apply the amendment to FRS 1 to annual periods beginning from 1 January 2007.

FRS 107, Financial Instruments: Disclosures

The standard introduces new disclosures to improve the information about financial instruments. It requires disclosure of qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk, including sensitivity analysis to market risk. The Group will apply FRS 107 to annual periods beginning from 1 January 2007.

2.4 Significant accounting estimates and judgements

Estimates, assumptions concerning the future and judgements are made in the preparation of the financial statements. They affect the application of the Group’s accounting policies, reported amounts of assets, liabilities, income and expenses, and disclosures made. They are assessed on an on-going basis and are based on experience and relevant factors, including expectations of future events that are believed to be reasonable under the circumstances.

Key sources of estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(i) Income taxes

The Group has exposure to income taxes in several jurisdictions. Judgement is involved in determining the group-wide provision for income taxes. There are certain transactions and computations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for expected tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recognised, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. The carrying amount of the Group’s tax payables at 31 December 2006 was $7,443,000 (2005: $5,990,000). The carrying amount of the Group’s deferred tax assets and liabilities at 31 December 2006 was $1,037,000 (2005: $nil) and $5,950,000 (2005: $6,471,000) respectively.






2.4 Significant accounting estimates and judgements (cont’d) (ii) Life insurance contract liabilities

The estimation of the ultimate liabilities arising from claims made under life insurance contracts is the Group’s most critical accounting estimate. These are sources of uncertainty that need to be considered in the estimation of the liabilities that the Group will ultimately pay for those claims.

Two major components in the estimation of the liabilities for insurance contracts are death benefits and investment returns. Estimates are made as to the expected number of deaths for each of the years in which the Group is exposed to risk. The Group base these estimates on standard industry and national mortality tables that reflect historical mortality experience, adjusted, where appropriate, to reflect the Group’s unique risk exposure. The estimated number of deaths determines the value of possible future benefits to be paid out which will be factored into ensuring sufficient cover by reserves, which in return is monitored against current and future premiums. Investment returns are based on the investment strategy of the Company, with due regard to the expected return on assets backing the insurance contracts.

Estimates for future deaths and investment returns are determined at the inception of each contract and are used to calculate the liability over the term of the contract. At each reporting date, these estimates are reassessed for adequacy and changes will be reflected in adjustments to the liability.

A liability adequacy test is performed at each reporting date to verify whether the insurance liabilities, net of deferred acquisition cost, are adequate using current estimates of future cash flows under the insurance contracts. The liability value is adjusted if insufficient to meet future obligations, taking into account future premiums, investment income, benefits and expenses and cash flows from embedded options and guarantees. If the test shows that a deficiency exists, the shortfall is immediately recorded in the profit and loss account. The liability adequacy test is performed at subsidiary company level.

The carrying value at the balance sheet date of life insurance contract liabilities is $1,147,205,000 (2005: $1,085,581,000).

(iii) Fair value of financial assets and derivative financial instruments determined using valuation techniques

Fair value, in the absence of an active market, is estimated by using valuation techniques, such as recent arm’s length transactions, reference to the current market value of another instrument which is substantially the same, a discounted cash flow analysis and/or option pricing models. For reference to similar instruments, instruments must have similar credit ratings.

For discounted cash flow analysis, estimated future cash flows and discount rates are based on current market information and rates applicable to financial instruments with similar yields, credit quality and maturity characteristics. Estimated future cash flows are influenced by factors such as economic conditions (including country specific risks), concentrations in specific industries, types of instruments or currencies, market liquidity and financial conditions of counterparties. Discount rates are influenced by risk free interest rates and credit risk.

The carrying values at the balance sheet date of investment securities, derivative financial assets and derivative financial liabilities are $1,334,564,000, $1,094,000 and $6,288,000, respectively (2005: $1,425,477,000, $2,185,000 and $712,000, respectively), as disclosed in notes 16, 20 and 21 to the financial statements.






2.5 Consolidation The accounting year of the Company and all its subsidiary companies ends on 31 December. The consolidated financial statements of the Group incorporate the financial statements of the Company and all its subsidiary companies to 31 December. The results of subsidiary companies acquired or disposed of during the year are included or excluded from the respective dates of acquisition or disposal, as applicable.

Assets, liabilities and results of overseas subsidiary companies are translated into Singapore dollars on the basis outlined in note 2.27.

2.6 Goodwill (a) Goodwill

Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated:

• Represents the lowest level within the Group at which the goodwill is monitored for internal management purposes; and

• Is not larger than a segment based on either the Group’s primary or the Group’s secondary reporting format.

A cash-generating unit (or group of cash-generating units) to which goodwill has been allocated are tested for impairment annually and whenever there is an indication that the unit may be impaired, by comparing the carrying amount of the unit, including the goodwill, with the recoverable amount of the unit. Where the recoverable amount of the cash-generating unit (or group of cash-generating units) is less than the carrying amount, an impairment loss is recognised. Where goodwill forms part of a cash-generating unit (or group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

Goodwill and fair value adjustments arising on the acquisition of foreign operations on or after 1 January 2005 are treated as assets and liabilities of the foreign operations and are recorded in the functional currency of the foreign operations and translated at the closing rate at the balance sheet date.






2.6 Goodwill (cont’d)

(a) Goodwill (cont’d)

Goodwill and fair value adjustments which arose on acquisitions of foreign subsidiaries before 1 January 2005 are deemed to be assets and liabilities of the parent company and are recorded in SGD at the rates prevailing at the date of acquisition.

The Group does not reverse in a subsequent period, any impairment loss recognised for goodwill.

(b) Negative goodwill

Negative goodwill arising on acquisition represents the excess of the fair value of identifiable net assets acquired over the cost of acquisition and is recognised in the profit and loss account on date of acquisition.

2.7 Subsidiary companies

A subsidiary company is a company in which the Company, directly or indirectly, controls more than half of the voting power or issued share capital or controls the composition of its board of directors. A subsidiary company is considered to be controlled if the Company has the power, directly or indirectly, to govern its financial and operating policies.

In the Company’s separate financial statements, investments in subsidiary companies are accounted for at cost less any impairment losses.

2.8 Associated companies

An associate is an entity, not being a subsidiary or a joint venture, in which the Group has significant influence. This generally coincides with the Group having 20% or more of the voting power, or where the Group has representation on the board of directors.

The Group’s investments in associates are accounted for using the equity method. Under the equity method, the investment in associate is carried in the balance sheet at cost plus post-acquisition changes in the Group’s share of net assets of the associate. The Group’s share of the profit or loss of the associate is recognised in the consolidated profit and loss account. Where there has been a change recognised directly in the equity of the associate, the Group recognises its share of such changes. After application of the equity method, the Group determines whether it is necessary to recognise any impairment loss with respect to the Group’s net investment in the associate. The associate is equity accounted for from the date the Group obtains significant influence until the date the Group ceases to have significant influence over the associate.

Goodwill relating to an associate is included in the carrying amount of the investment.

Any excess of the Group’s share of the net fair value of the associate’s identifiable assets, liabilities and contingent liabilities over the cost of the investment is excluded from the carrying amount of the investment and is instead included as income in the determination of the Group’s share of the associate’s profit or loss in the period in which the investment is acquired.

When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.






2.8 Associated companies (cont’d)

The most recent available audited financial statements of the associates are used by the Group in applying the equity method. Where the dates of the audited financial statements used are not co-terminous with those of the Group, the share of results is arrived at from the last audited financial statements available and un-audited management financial statements to the end of the accounting period. Consistent accounting policies are applied for like transactions and events in similar circumstances.

In the Company’s separate financial statements, investments in associates are accounted for at cost less impairment losses.

2.9 Revenue recognition

Revenues from the sale of products are recognised upon transfer of title to customers which generally coincides with their delivery and acceptance.

Revenues from the provision of other services are recognised upon completion. Rental income from investment properties is recognised on a straight-line basis over the term of each lease.

Interest income is recognised on an accrual basis using the effective interest method that is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instruments to the net carrying amount of the financial assets.

Dividend income is recognised when the right to receive payment is established.

Premiums in respect of traditional insurance policies and group policies are recognised as income as and when they fall due, whereas those in respect of universal life and unit-linked contracts are accounted for as they are received.

Ceded reinsurance recoveries are accounted for in the same period as the underlying claim.

Premiums on reinsurance contracts that transfer underwriting risk are expensed as incurred.

Commissions received on reinsurance policies that transfer underwriting risk are recognised as income at the same time as the reinsurance premiums are accounted for.

2.10 Impairment of non-financial assets

Where an indication of impairment exists, or when annual impairment testing for an asset is required, the asset’s recoverable amount is estimated. An asset’s recoverable amount is calculated as the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs to sell, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs.






2.10 Impairment of non-financial assets (cont’d)

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to the profit and loss account in the period in which it arises, unless the asset is carried at a revalued amount, in which case the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, however not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation), had no impairment loss been recognised for the asset in prior years. A reversal of such impairment loss is credited to the profit and loss account statement in the period in which it arises, unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

2.11 Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, are normally charged to the profit and loss account in the period in which they are incurred. In situations where it can be clearly demonstrated that an expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property, plant and equipment and where the cost of the item can be measured reliably, the expenditure is capitalised as an additional cost of that asset or as a replacement.

2.12 Depreciation

Depreciation is calculated on the straight-line method which writes off the cost of each item of property, plant and equipment to its residual value evenly over its estimated useful life. The estimated useful lives of property, plant and equipment are as follows:

Furniture, fittings and equipment – 3 to 5 years Leasehold land – 50 years or the lease term, whichever is shorter Leasehold improvements – over the period of lease Motor vehicles – 5 years Other plant, machinery and equipment – 2 to 7 years Buildings – 16 to 40 years

Where parts of an item of property, plant and equipment have different useful lives, the cost or valuation of that item is allocated on a reasonable basis among the parts and each part is depreciated separately.

Residual values, useful lives and depreciation method are reviewed, and adjusted if appropriate, at each balance sheet date.






2.12 Depreciation (cont’d) An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected

from its use or disposal. Any gain or loss arising on derecognition of the asset is included in the profit and loss account in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Fully depreciated property, plant and equipment are retained in the financial statements until they are no longer in use. No further charge for depreciation is made in respect of these assets.

2.13 Investments and other financial assets

Financial assets within the scope of FRS 39 are classified as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets, as appropriate. Financial assets are recognised in the balance sheet when, and only when, the Group becomes a party to the contractual provisions of the financial instrument. When financial assets are recognised initially, they are measured at fair value plus, in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs. The Group considers whether a contract contains an embedded derivative when the Group first becomes a party to it. The embedded derivatives are separated from the host contract which is not measured at fair value through profit or loss when the analysis shows that the economic characteristics and risks of embedded derivatives are not closely related to those of the host contract.

The Group determines the classification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at the balance sheet date.

All regular way purchases and sales of financial assets are recognised on the trade date which is the date on which the Group commits to purchase or sell the asset. Regular way purchases or sales of financial assets are those which require delivery of assets within a certain period generally established by regulation or convention in the marketplace.

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

Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition 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. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments or financial guarantee contracts. Gains or losses on investments held for trading are recognised in the profit and loss account.

Where a contract contains one or more embedded derivatives, the entire hybrid contract may be designated as a financial asset at fair value through profit or loss, except where the embedded derivative does not significantly modify the cash flows or it is clear that separation of the embedded derivative is prohibited.






2.13 Investments and other financial assets (cont’d)

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

Financial assets may be designated upon initial recognition at fair value through profit or loss if the following criteria are met:

(i) the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognising gains or losses on them on a different basis;

(ii) the assets are part of a group of financial assets which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management strategy; or

(iii) the financial assets contain embedded derivatives that would need to be separately recorded.

(b) Held-to-maturity investments

Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity when the Group has the positive intention and ability to hold to maturity. Investments intended to be held for an undefined period are not included in this classification. Held-to-maturity investments are subsequently measured at amortised cost. Amortised cost is computed as the amount initially recognised minus principal repayments, plus or minus cumulative amortisation using the effective interest method on any difference between the initially recognised amount and the maturity amount. This calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums and discounts. Gains and losses are recognised in the profit and loss account when investments are derecognised or impaired, as well as through the amortisation process.

(c) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Amortised cost is calculated taking into account any discount or premium on acquisition and includes fees that are an integral part of the effective interest rate and transaction cost. Gains and losses are recognised in the profit and loss account when loans and receivables are derecognised or impaired, as well as through the amortisation process.

(d) Available-for-sale financial assets

Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified in any of the other three categories. After initial recognition, an available-for-sale financial asset is measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in equity is included in the profit and loss account.

When the fair value of unquoted securities cannot be reliably measured because (a) the variability in the range of reasonable fair value estimates is significant for that investment or (b) the probabilities of the various estimates within the range cannot be reasonably assessed and used in estimating fair value, such securities are stated at cost less any impairment losses.






2.13 Investments and other financial assets (cont’d) (e) Fair value

The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include the use of recent arm’s length market transactions; reference to the current market values of other instruments which are substantially the same; discounted cash flow analysis and option pricing models.

2.14 Impairment of financial assets The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or group

of financial assets is impaired.

(a) Assets carried at amortised cost

If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through the use of an allowance account. The amount of impairment loss is recognised in the profit and loss account.

The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the profit and loss account, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date.

(b) Assets carried at cost

If there is objective evidence that an impairment loss on financial asset carried at cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed in subsequent periods.






2.14 Impairment of financial assets (cont’d) (c) Available-for-sale financial assets

If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in the profit and loss account, is transferred from equity to the profit and loss account. Impairment losses on equity instruments classified as available-for-sale are not reversed through the profit and loss account.

Impairment losses on debt instruments are reversed through the profit and loss account, if the increase in fair value of the instrument can be objectively related to an event, occurring after the impairment loss was recognised in the profit and loss account.

2.15 Derecognition of financial assets and liabilities (a) Financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised where:

• the rights to receive cash flows from the asset have expired;

• the Group retains the rights to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; or

• the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

Where continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or similar provision) on the transferred asset, the extent of the Group’s continuing involvement is the amount of the transferred asset that the Group may repurchase, except in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value, where the extent of the Group’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price.






2.15 Derecognition of financial assets and liabilities (cont’d) (b) Financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference between the respective carrying amounts is recognised in the profit and loss account.

2.16 Derivative financial instruments and hedging

The Group uses derivative financial instruments such as cross currency swap agreements to hedge its risks associated with foreign currency fluctuations. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

Any gains or losses arising from changes in fair value of derivatives (including embedded derivatives) that do not qualify for hedge accounting are taken directly to the profit and loss account.

The fair value of cross currency swap agreements is determined by reference to the present value of estimated future cash flows.

For the purpose of hedge accounting, hedges are classified as cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction or a foreign currency risk in an unrecognised firm commitment.

At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the Group will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.

Cash flow hedges which meet the strict criteria for hedge accounting are accounted for as follows:

The effective portion of the gain or loss on a hedging instrument is recognised directly in equity, while the ineffective portion is recognised in the profit and loss account.

Amounts taken to equity are transferred to the profit and loss account when the hedged transaction affects the profit and loss account, such as when hedged financial income or financial expense is recognised or when a forecast sale or purchase occurs.






2.16 Derivative financial instruments and hedging (cont’d)

If the forecast transaction or firm commitment is no longer expected to occur, the amounts previously recognised in equity are transferred to the profit and loss account. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, the amounts previously recognised in equity remain in equity until the forecast transaction or firm commitment occurs.

2.17 Investment properties

Investment properties are properties held either to earn rental income or for capital appreciation or both. Investment properties are measured initially at cost, including transaction costs. The carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met and excludes the costs of day-to-day servicing of an investment property. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the balance sheet date. Gains or losses arising from changes in the fair values of investment properties are included in the profit and loss account in the year in which they arise. Investment properties are derecognised when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognised in the profit and loss account in the year of retirement or disposal.

2.18 Intangibles

Deferred acquisition costs which represent costs primarily related to the production of new insurance business are deferred in so far as there are sufficient margins in future premiums from the new business to fund amortisation of these costs. These costs include first year commissions and other costs related to the acquisition of new insurance business which are carried at cost and amortised on a straight-line basis over 10 years. In addition, these costs are adjusted for any impairment in value determined by reference to margins on future premiums.

2.19 Leases

(a) As lessee Operating lease payments are recognised as an expense in the profit and loss account on a straight-line basis over the

lease term. The aggregate benefit of incentives provided by the lessor is recognised as a reduction of rental expense over the lease term on a straight-line basis.

(b) As lessor

Leases where the Group retains substantially all the rewards and risks of ownership of the asset are classified as operating leases. Rental income and expenses under operating leases are accounted for in the profit and loss account on a straight-line basis over the period of the relevant leases.

2.20 Inventories

Inventories are carried at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.






2.21 Receivables, premiums receivable and other recoverables

Receivables and other recoverables, including amounts owed by related companies and related parties, are classified and accounted for as loans and receivables under FRS 39. The accounting policy for this category of financial assets is stated in note 2.13.

An allowance is made for uncollectible amounts when there is objective evidence that the Group will not be able to collect the debt. Bad debts are written off as incurred. Further details of the accounting policy for impairment of financial assets are stated in note 2.14.

Insurance premiums receivable represent premiums which are due for payment. The Group normally allows policyholders to make payments within a grace period of one month from the due date. The grace period may be further extended by one month purely on a discretionary basis. Insurance policies continue in force if default premiums are settled before the expiry of the grace period.

2.22 Financial liabilities (a) Financial liabilities at amortised cost

Financial liabilities, including amounts payable to policyholders, interest-bearing loans, policyholders’ dividends, bonuses, amounts due to related companies and related parties, are initially stated at fair value less directly attributable transaction costs and are subsequently measured at amortised cost, using the effective interest method unless the effect of discounting would be immaterial, in which case they are stated at cost.

Gains and losses are recognised in the profit and loss account when liabilities are derecognised as well as through the amortisation process.

(b) Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as being at fair value through profit or loss.

Financial liabilities are classified as held for trading if they are acquired for the purpose of sale in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading, unless they are designated as effective hedging instruments. Gains or losses on liabilities held for trading are recognised in the profit and loss account.

Where a contract contains one or more embedded derivative, the entire hybrid contract may be designated as a financial liability at fair value through profit or loss, except where the embedded derivative does not significantly modify the cash flows or it is clear that separation of the embedded derivative is prohibited.






2.22 Financial liabilities (cont’d) (b) Financial liabilities at fair value through profit or loss (cont’d)

Financial liabilities may be designated upon initial recognition as at fair value through profit or loss if the following criteria are met:

• the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the liabilities or recognising gains or losses on them on a different basis;

• the liabilities are part of a group of financial liabilities which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management strategy; or

• the financial liability contains an embedded derivative that would need to be separately recorded.

2.23 Employee benefits (a) Defined contribution plans

Contributions relating to defined contribution plans, including Central Provident Fund in Singapore and Mandatory Provident Fund (“MPF”) in Hong Kong, are recognised as compensation expenses in the same period as the employment that gives rise to the contributions. MPF contributions are reduced, where appropriate, by contributions forfeited by those employees who leave the scheme before such contributions become vested.

(b) Employee leave entitlements

Employee entitlements to annual leave are recognised when they accrue to employees. An accrual is made for the estimated liability for leave as a result of services rendered by employees up to the balance sheet date.

(c) Share-based payment transactions

The Company and a subsidiary of the Company operate share option schemes for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Company’s and subsidiary’s operations. Employees (including directors) receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (“equity-settled transactions”).

The cost of equity-settled transactions with employees is measured by reference to the fair value at the date on which they are granted. Fair value is determined by an external valuer using the Black-Scholes option pricing model. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares (“market conditions”), if applicable.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the “vesting date”). The cumulative expense recognised for equity-settled transactions at each balance sheet date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The charge or credit to the profit and loss account for a period represents the movement in the cumulative expense recognised as at the beginning and end of that period.






2.23 Employee benefits (cont’d) (c) Share-based payment transactions (cont’d)

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.

Where the terms of an equity-settled award are modified, as a minimum, an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any modification, which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.

The dilutive effect of outstanding options is reflected as additional share dilution, if any, in the computation of earnings per share.

2.24 Provisions

A provision is recognised when, and only when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable (i.e. more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect current best estimates. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditures expected to be required to settle the obligation.

Contingent liabilities are not recognised in the financial statements. They are, however, disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognised in the financial statements but is disclosed when an inflow of economic benefit is probable.

2.25 Borrowings Interest bearing loans

All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method.

Gains and losses are recognised in net profit or loss when the liabilities are derecognised as well as through the amortisation process.






2.26 Income taxes

(a) Current tax

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.

(b) Deferred tax

Deferred income tax is provided using the liability method on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences, except:

• Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• In respect of taxable temporary differences associated with investments in subsidiary companies, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred income tax assets are recognised for all deductible temporary differences (other than those mentioned above), carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax credits and unused tax losses can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are re-assessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Income tax relating to items recognised directly in equity is recognised in equity.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.






2.26 Income taxes (cont’d)

(c) Sales tax

Revenues, expenses and assets are recognised net of the amount of sales tax except:

• Where the sales tax incurred on the purchase of an asset or service is not recoverable from the taxation authority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense as applicable; and

• Receivables and payables that are stated with the amount of sales tax included.

The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.

2.27 Functional and foreign currency

Functional currency

The currency of the primary economic environment in which the Company operates i.e. functional currency, is Hong Kong dollars (‘‘HK$’’). The presentation currency is Singapore dollars. The method of translation is described below.

(i) Foreign currency transactions Transactions in foreign currencies are measured in the respective functional currencies of the Company and its subsidiary

companies and are recorded on initial recognition in the functional currencies at exchange rates approximating those ruling on the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the closing rate of exchange ruling at the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Exchange differences arising on the settlement of monetary items or on translating monetary items at the balance sheet date are recognised in the profit and loss account, except for exchange differences arising on monetary items that form part of the Group’s net investment in foreign subsidiary companies, which are recognised initially as a separate component of equity as foreign currency translation reserve in the consolidated balance sheet and in the consolidated profit and loss account on disposal of the subsidiary. In the Company’s separate financial statements, such exchange differences are recognised in the profit and loss account.

Differences on foreign currency borrowings that provide a hedge against a net investment in a foreign operation are also taken directly to the foreign currency translation reserve until the disposal of the net investment, at which time they are recognised in the profit and loss account. Tax charges and credits attributable to exchange differences on those borrowings are also dealt with in the foreign currency translation reserve.






2.27 Functional and foreign currency (cont’d)

(ii) Foreign currency translation

The results and financial position of foreign operations are translated into Singapore dollars using the following procedures:

• Assets and liabilities for each balance sheet presented are translated at the closing rate ruling at that balance sheet date; and

• Income and expenses for each profit and loss account are translated at average exchange rates for the year, which approximates the exchange rates at the dates of the transactions.

All resulting exchange differences are recognised in a separate component of equity as foreign currency translation reserve.

On disposal of a foreign operation, the cumulative amount of exchange differences deferred in equity relating to that foreign operation is recognised in the profit and loss account as a component of the gain or loss on disposal.

2.28 Cash and cash equivalents

Cash and cash equivalents consist of cash at bank and cash on hand less bank overdrafts, but exclude secured bank overdrafts which are used for financing activities.

Cash at bank and cash on hand carried in the balance sheet are classified and accounted for as loans and receivables under FRS 39. The accounting policy for this category of financial assets is stated in note 2.13.

2.29 Product classification

The Group issues contracts that transfer insurance risk or financial risk or both.

Insurance contracts

Insurance contracts are those contracts for which the Group has accepted significant insurance risk from policyholders providing coverage for death, accident and sickness at the inception of the contract. As a general guideline, the Group determines whether it has significant insurance risk, by comparing benefits paid with benefits payable if the insured event did not occur. The Group also accepts financial risk on insurance contracts. Financial risk is the risk of a possible future change in specified interest rate, security price, commodity price, foreign exchange rate, index of price or rate, credit rating or credit index or other variables.

Investment contracts are those contracts that do not transfer significant insurance risk.

Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its life, even if the insurance risk reduces significantly during this period, unless all rights and obligations are extinguished or expire. Investment contracts can, however, be reclassified as insurance contracts after inception if the insurance risk becomes significant.






2.30 Insurance contracts liabilities

Insurance contract liabilities represent net future policy liabilities as determined by the appointed actuary of the Group using a net level premium approach.

The provision for life insurance contracts with fixed level premiums is calculated on the basis of the prudent prospective actuarial valuation method where the assumptions used depend on the circumstances prevailing. The liability is determined as the sum of the expected discounted value of the benefit payments, less the expected discounted value of the theoretical premiums that would be required to meet the benefits, based on the valuation assumptions as to mortality and investment income that are established at the time the contract is issued, plus a margin for adverse deviation. Changes to the liabilities at each reporting date are recorded in the profit and loss account as an expense. The liabilities on yearly renewable premium contracts are the liabilities for the unexpired risks carried at the balance sheet date. The liability is derecognised when the contract expires, is discharged or is cancelled.

2.31 Investment contract liabilities

Liabilities for investment contracts are carried at fair values through accumulated cash flows plus investment income credited to the contracts, either at the discretion of the Group or linked to the changes in unit fund values.

Deposits and withdrawals are recorded directly as an adjustment to the liability in the balance sheet, known as deposit accounting.

Fees charged and investment income received are recognised in the profit and loss account when earned.

The liability is derecognised when the contract expires, is discharged or is cancelled. For a contract that can be cancelled by the policyholder, the fair value cannot be less than the surrender value.

2.32 Reinsurance

The Group cedes insurance risk in the normal course of business for its insurance contracts. Reinsurance assets represent balances due from reinsurance companies. Recoverable amounts are estimated in a manner consistent with the insurance contract liabilities, are in accordance with the reinsurance contracts and are accounted for in the same period as the underlying claims.

An impairment review is performed at each reporting date or more frequently when an indication of impairment arises during the reporting year. Impairment occurs when objective evidence exists that the Group may not recover outstanding amounts under the terms of the contract and when the impact on the amounts that the Group will receive from the reinsurer can be measured reliably. The impairment loss is recorded in the profit and loss account.

Reinsurance arrangements do not relieve the Group from its obligations to policyholders.






2.33 Fees and commission income

Insurance and investment contract policyholders are charged for policy administration services and investment management services. The policy administration fee is recognised as revenue in the period in which it is received. Investment management fees related to asset management services are recognised over the period the services are provided.

2.34 Benefits and insurance claims

Death claims and surrenders are recorded when notifications are received. Maturities and annuity payments are recorded when due. Benefits recorded are accrued to liabilities.

3. tuRnoveR

The Group’s turnover represents income from insurance business which represents the gross premiums received and fees on investment contracts and asset management receivable from the sale of group life and individual life insurance policies, rental income, net invoiced sales of goods, income from hotel operations and management fees. It excludes inter-company transactions.

Turnover is analysed as follows: Group 2006 2005 $’000 $’000

Insurance premiums 401,478 386,434 Fees on investment contracts and asset management 5,141 4,720 Infrastructure and property – 51,321 Other services 4,283 1,767 410,902 444,242

4. Cost oF sALes Group 2006 2005 $’000 $’000 Cost of sales and services 458 457 Cost of property rental 1,347 803 Cost of sales of properties – 48,919 Cost related to insurance business 129,002 116,472 130,807 166,651





5. investment inCome, net GAins, AnD otHeR inCome Group 2006 2005 $’000 $’000

Investment income, (a) 115,301 17,071 Interest income 57,623 45,029 Dividend income from quoted and unquoted investments 7,785 6,708 Reinsurance commission 3,926 4,489 Others 7,380 8,612 192,015 81,909

(a) Investment income: Realised gain on quoted and unquoted investments 4,036 – Realised gain on available-for-sale investments (transferred from equity) 52,360 8,866 Impairment losses of an available-for-sale financial asset (transfer from equity) (1,605) – Realised loss on embedded derivatives, (i) (54) (8) Unrealised gain on financial assets at fair value through profit or loss 60,723 8,416 Unrealised loss on embedded derivatives, (i) (526) (489) Gain on fair value of investment properties 367 286 115,301 17,071

(i) The Group has invested in convertible bonds and callable bonds, which have a call option to convert the bonds into equity of the issuer at an established conversion rate.

6. PRoFit FRom oPeRAtinG ACtivities Group 2006 2005 $’000 $’000 This is stated after crediting/(charging) the following: Directors’ emoluments and fees (6,244) (4,064) Non-audit fees paid to auditors: – Auditors of the Company (70) (80) – Auditors of the insurance subsidiary (151) (9) – Other auditors of other subsidiary companies – (2) Operating lease rental: – Insurance business (9,002) (6,462) – Other businesses (1,673) (1,089)





6. PRoFit FRom oPeRAtinG ACtivities (Cont’D) Group 2006 2005 $’000 $’000 Depreciation and amortisation: Insurance business – Depreciation of property, plant and equipment (3,434) (3,389) – Amortisation of deferred acquisition costs (61,660) (61,395) Other businesses – Depreciation of property, plant and equipment (324) (385) Gross rental income on investment properties – Insurance business 266 211 Direct operating expenses (including repairs and maintenance) arising from investment properties – Insurance business (86) (33) Write-back of/(provision for): Insurance business – other debtors 11 2,677 Other businesses – amount owing by an associated company – 13,300 – other debtors (1,408) (2,024) Foreign exchange (loss)/gain: – Insurance business (1,157) 916 – Other businesses (776) (25,459) Gain on disposal of property, plant and equipment: – Insurance business 3,110 20 – Other businesses – 110

There were no staff costs for the Company. Staff costs for the Group amounted to $41,339,000 (2005: $28,006,000).

Contributions to Singapore Central Provident Fund and Hong Kong Mandatory Provident Fund for the year totalled $65,000 (2005: $72,000) and $ 4,051,000 (2005: $2,775,000) respectively for the Group.





7. FinAnCe Costs Group 2006 2005 $’000 $’000

Interest expense: – bank loans and overdrafts 26,385 6,495 – convertible bonds 22,970 17,650 – finance facility fees 5,481 9,901 – premium on redemption of convertible bonds – 33,148 Others – 71 54,836 67,265

8. tAxAtion Group 2006 2005 $’000 $’000

Current income tax:Tax expense on profit for the year 5,242 5,386Over-provision in respect of prior years (496) –

Deferred income tax: Tax benefit from accrued expenses available for offset against future taxable profits (1,071) –Income tax attributable to discontinued operations, note 9 – 14 3,675 5,400

A reconciliation between the tax expense and the product of accounting profit multiplied by applicable tax rates for the years ended 31 December was as follows:

Profit before taxation 80,053 26,026 Taxation at statutory tax rate of 20% (2005: 20%) 16,011 5,205 Adjustments: Income not subject to taxation (8,550) (9,046) Expenses not deductible for tax purposes 11,063 20,429 Deferred tax assets not recognised 59 6,434 Over-provision in prior years (496) – Share of results of associated companies (12,988) (17,129) Utilisation of tax benefit arising from unabsorbed capital allowances and tax losses – (105) Effect of difference in tax rates in overseas jurisdictions (1,424) (318) Utilisation of losses of other related companies under the Group Relief System – (70) Tax expense 3,675 5,400

At 31 December 2006, certain subsidiary companies have unutilised tax losses amounting to approximately $64,245,000 (2005: $63,949,000) available for set-off against taxable income in the future for which no deferred tax asset is recognised due to uncertainty as to its recoverability. The use of these tax losses is subject to agreement by the relevant tax authorities and in compliance with certain provisions of the tax legislation of the respective countries in which the companies operate.





9. Assets HeLD-FoR-sALe

In June 2002, Pacific Century Insurance Company Limited (“PCI”), a wholly-owned subsidiary of the Group, entered into an agreement for the transfer of its Mandatory Provident Fund (“MPF”) business to HSBC Life. The disposal is consistent with the Group’s long-term strategy to focus on providing an extensive range of whole life, endowment and term life insurance products to individuals in Hong Kong. The transfer of the MPF business commenced in July 2002, and the Group plans to complete the transfer in 2007. As at 31 December 2006, the MPF business was classified as a disposal group held for sale.

The results of the MPF business for the year are presented below: Group 2006 2005 $’000 $’000

Revenue Interest income 312 199 other income Realised and unrealised gains on financial assets at fair value through profit or loss 950 311 Other income 53 47 1,003 358 total income 1,315 557 operating expenses Policyholders’ benefits (950) (311) Management expenses (219) (104) Total operating expenses (1,169) (415) Profit before tax from discontinued operation 146 142 Tax related to pre-tax profit – (14) Profit for the year from discontinued operation 146 128 The major classes of assets and liabilities of the MPF business classified as held-for-sale as at 31 December are as follows:

Assets Financial assets at fair value through profit or loss 3,736 4,549 Time deposits with original maturity of more than three months when acquired 434 452 Cash and cash equivalents 7,506 7,791 Prepayments and other debtors 2 55 Assets classified as held-for-sale 11,678 12,847 Liabilities Payable to policyholders 7 12 Accrued expenses and other creditors 85 84 Future insurance liabilities under investment contracts 3,735 4,549 Liabilities directly associated with assets classified as held-for-sale 3,827 4,645 net assets directly associated with the disposal group 7,851 8,202





9. Assets HeLD-FoR-sALe (Cont’D)

The net cash flows incurred by the MPF business are as follows: Group 2006 2005 $’000 $’000

Operating 285 235 Investing – – Financing – – Net cash inflow 285 235 Earnings per share (Singapore cents) – basic 0.00 0.00 – fully diluted 0.00 0.00

The calculations of basic and fully diluted earnings per share from the discontinued operation are based on:

Net profit from discontinued operations of a subsidiary company 146 128 Less: Minority interest of subsidiary (77) (68) Net profit attributable to equity holders of the Company 69 60 number number Weighted average number of ordinary shares in issue during the year used in the basic earnings per share calculation 3,096,269,100 3,096,269,100 Weighted average number of ordinary shares used in the fully diluted earnings per share calculation 3,096,269,100 3,096,269,100

10. eARninGs PeR sHARe

Basic earnings per share is calculated by dividing the profit from continuing operations attributable to equity holders of the Company for the year of $41,367,000 (2005: $15,398,000), by the weighted average number of 3,096,269,100 (2005: 3,096,269,100) ordinary shares in issue during the year.

As there is no dilutive impact from share options outstanding at year end, the fully diluted earnings per share is the same as the basic earnings per share.





11. PRoPeRty, PLAnt AnD equiPment Renovations, furniture, other plant, Leasehold fittings machinery land and and office motor and buildings equipment vehicles equipment total $’000 $’000 $’000 $’000 $’000

Group Cost At 1.1.2005 51,799 20,131 1,010 8,256 81,196 Exchange translation adjustment 1,075 395 13 159 1,642 Additions – 3,784 181 579 4,544 Disposals (2) (507) (669) (1,202) (2,380) At 31.12.2005 and 1.1.2006 52,872 23,803 535 7,792 85,002 Exchange translation adjustment (2,855) (1,541) (26) (613) (5,035) Additions – 7,165 – 1,259 8,424 Disposals (44,156) (11,331) – (184) (55,671) * Reclassified (920) – – – (920) At 31.12.2006 4,941 18,096 509 8,254 31,800 Accumulated depreciation At 1.1.2005 9,664 16,232 897 7,301 34,094 Exchange translation adjustment 199 320 12 141 672 Charge for the year 1,367 1,724 39 644 3,774 Disposals (2) (478) (636) (1,184) (2,300) At 31.12.2005 and 1.1.2006 11,228 17,798 312 6,902 36,240 Exchange translation adjustment (667) (1,170) (24) (565) (2,426) Charge for the year 1,050 2,100 55 553 3,758 Disposals (8,359) (9,880) – (124) (18,363) * Reclassified (46) – – – (46) At 31.12.2006 3,206 8,848 343 6,766 19,163 Net book value At 31.12.2006 1,735 9,248 166 1,488 12,637

At 31.12.2005 41,644 6,005 223 890 48,762 * During the year one leasehold building was reclassified to Investment Properties as this asset was leased to third parties

and was no longer owner-occupied (note 15).





11. PRoPeRty, PLAnt AnD equiPment (Cont’D) Renovations, furniture, fittings and office motor equipment vehicles total $’000 $’000 $’000

Company Cost At 1.1.2005, 31.12.2005 and 31.12.2006 808 195 1,003 Accumulated depreciation At 1.1.2005 807 157 964 Charge for the year 2005 1 38 39 At 31.12.2005 and 1.1.2006 808 195 1,003 Charge for the year – – – At 31.12.2006 808 195 1,003 Net book value At 31.12.2005 and 31.12.2006 – – –

12. investments in subsiDiARy ComPAnies Company 2006 2005 $’000 $’000

Quoted shares, at cost 72,839 79,206 Unquoted shares, at cost 125,979 136,991 198,818 216,197 Less: Impairment in value (5,958) (6,479) Carrying amounts of investments 192,860 209,718

Quoted shares, at market value 349,707 228,908

An analysis of provision for impairment in value of cost of investments is as follows: Balance at 1 January 6,479 1,653 Translation effect on change of functional currency – (23) Exchange translation adjustment (521) – Charged to profit and loss – 4,849 Balance at 31 December 5,958 6,479

Details of subsidiary companies are set out in note 44.





13. investments in AssoCiAteD ComPAnies Group Company 2006 2005 2006 2005 $’000 $’000 $’000 $’000

Associated companies Unquoted shares, at cost 548 596 548 596 Quoted shares, at cost 956,290 1,039,881 956,290 1,039,881 956,838 1,040,477 956,838 1,040,477 Share of post-acquisition reserves (916,810) (989,409) – – Carrying amount of investments 40,028 51,068 956,838 1,040,477 Market value of quoted shares 1,427,370 1,566,905 1,427,370 1,566,905

The summarised financial information of the associates is as follows: Group 2006 2005 $’000 $’000

Assets and liabilities: Current assets 3,911,644 5,541,502 Non-current assets 5,874,020 5,928,169 Total assets 9,785,664 11,469,671 Current liabilities 5,071,394 4,805,974 Non-current liabilities 4,152,001 6,086,068 Total liabilities 9,223,395 10,892,042 Results: Revenue 5,228,306 4,817,257

Profit for the year 253,477 340,443

Details of associated companies are set out in note 44.

In 2005, approximately 366 million PCCW Limited (“PCCW”) shares held by the Company were pledged as security for exchangeable bonds issued by the Company. The exchangeable bonds were fully redeemed in 2006 (note 27).

In 2006, approximately 1,476 million PCCW shares held by the Company were pledged as security to various bankers for new revolving banking facilities rendered to the Company and a subsidiary company (note 26).





14. intAnGibLes Group 2006 2005 $’000 $’000

Deferred acquisition costs Net book value at 1 January 284,543 275,633 Exchange translation adjustment (20,973) 5,559 Additions 83,653 64,746 347,223 345,938 Less: Amortisation for the year (61,660) (61,395) Net book value at 31 December 285,563 284,543 Analysis of net book value of deferred acquisition costs: Current assets 58,201 61,508 Non-current assets 227,362 223,035 285,563 284,543

15. investment PRoPeRties Group 2006 2005 $’000 $’000

At 1 January 3,578 3,225 Gains from fair value adjustment recognised in profit and loss account 367 286 Reclassification from property, plant and equipment, note 11 874 – Exchange translation adjustment (284) 67 At 31 December 4,535 3,578 Investment properties are stated at fair values, which have been determined based on valuations as at 31 December

2006 performed by registered independent appraisers having appropriate recognised professional qualifications and recent experience in the location and category of properties being valued. The valuations were arrived at by reference to market prices of transactions for similar properties.

The property rental income earned by the Group for the year ended 31 December 2006 from its investment properties, all of which are leased out under operating leases, amounted to $266,000 (2005: $211,000). Direct operating expenses (including repairs and maintenance) arising from rental-earning investment properties amounted to $86,000 (2005: $33,000).





15. investment PRoPeRties (Cont’D) The investment properties held by the Group as at 31 December are as follows: Fair value name of properties Description tenure of land 2006 2005 $’000 $’000

Bright China An office unit at level 6 of a 45 year lease from 430 484 Changan Building, China. 17-storey commercial building 21 August 1998 and on Jianguomennei Main Street, expiring on Beijing, China. 1 December 2043. House No. B30, A 3-storey detached garden house 62 year lease from 1,634 1,590 Yaqu Garden, China. within King’s Garden Villa on 7 March 2002 expiring Xiaoyun Road, Chaoyang District, on 6 February 2064. Beijing, China. House No. B33, A 3-storey detached garden house 62 year lease from 1,522 1,504 Yaqu Garden, China. within King’s Garden Villa on 7 March 2002 expiring Xiaoyun Road, Chaoyang District, on 6 February 2064. Beijing, China. * Unit 17-18, 30/F, Citic Plaza, Office tower in Tienhe District, 50 year lease from 949 – 233 Tianhe North. Road, Guangzhou, China. 30 September 1994, Guangzhou, China. expiring on 29 September 2044. 4,535 3,578

* This property was reclassified from leasehold property to investment property during the year. The property is now leased to third parties and is no longer owner-occupied.

16. LonG-teRm investments Group Company 2006 2005 2006 2005 $’000 $’000 $’000 $’000

Available for sale Quoted bonds, at market value, (a) 705,173 595,704 – –Unquoted equity investments, at fair value 22,104 17,897 1,077 1,119Quoted equity investments, at market value 6,291 5,937 – –Available-for-sale unquoted exchangeable note, investment element at cost, (b) – 109,249 – – 733,568 728,787 1,077 1,119

Held to maturityQuoted bonds, at amortised cost, (c) – 29,435 – – 733,568 758,222 1,077 1,119





16. LonG-teRm investments (Cont’D) (a) Quoted bonds analysed by category of issuer as at the balance sheet date were as follows: Group 2006 2005 $’000 $’000

Governments 45,574 85,733 Banks and other financial institutions 439,798 273,520 Corporate entities 219,801 236,451 705,173 595,704

The maturity profile of the quoted bonds as at the balance sheet date was as follows: Group 2006 2005 $’000 $’000

With a residual maturity of: One year or less 211,536 57,394Two years or less but over one year 159,429 65,776Three years or less but over two years 54,522 99,451Four years or less but over three years 29,905 50,769Five years or less but over four years 24,845 40,499Over five years 224,936 281,815 705,173 595,704

The effective interest rates of quoted bonds ranged from 2.21% to 8.63% (2005: 1.76% to 6.83%) per annum.

(b) The Group subscribed for an exchangeable note on 3 June 2005, the component parts consist of an investment element and an option to convert into shares in the future. The basic note will be held as an available-for-sale financial asset and the option will be held as a derivative. The investment element was carried at cost and the embedded option to convert the shares in the future had zero fair value as at 31 December 2005 since the Group was not able to exercise its exchange right as a result of the controls on foreign ownership of insurance businesses existing under PRC law. On 28 February 2006, the Group entered into an agreement to terminate the note. The principal was subsequently repaid with accrued interest.

(c) As at 31 December 2006, held-to-maturity bonds with a market value of $26,889,000 (2005: $29,219,000) were classified as current assets as in note 20. These are bonds issued by corporate entities.

As at 31 December 2006, the Group’s available-for-sale financial assets, both long and short term, amounted to $733,568,000 (2005: $728,787,000) and $160,172,000 (2005: $563,665,000) (note 20) respectively.

The net gain on these available-for-sale financial assets recognised directly in equity attributable to equity holders of the Company was $17,325,000 (2005: $23,430,000). Realised gain of $23,909,000 (2005: $4,159,000) and impairment losses of $733,000 (2005: nil) attributable to equity holders of the Company were removed from equity during the year and recognised in the profit and loss account.

The above investments consist of investments in bonds, equity securities, unit trusts and mutual funds. Equity securities, unit trusts and mutual funds have no fixed maturity date or coupon rate.





16. LonG-teRm investments (Cont’D)

The fair values of quoted bonds, unlisted unit trusts, unlisted mutual funds and listed equity investments are based on quoted market prices. The fair value of an unlisted available-for-sale equity investment has been estimated using a valuation technique based on assumptions that are not supported by observable market prices or rates. The Directors believe that the estimated fair value resulting from this valuation technique, which is recorded in the consolidated balance sheet, and the related change in fair value, which is recorded in the consolidated statement of changes in equity, is reasonable and that such estimated fair value was the most appropriate value at the balance sheet date.

Management has estimated the potential effect of using reasonably possible alternatives as inputs to the valuation model for an unlisted equity investment and has quantified the effects of a reduction in fair value of approximately $5,128,000 using less favourable assumptions, and an increase in fair value of approximately $5,128,000, using more favourable assumptions.

Long-term investments denominated in original currencies as at 31 December are as follows:

Group Company 2006 2005 2006 2005 $’000 $’000 $’000 $’000

Hong Kong dollar 211,039 222,374 – – United States dollar 521,452 534,729 – – Singapore dollar 1,077 1,119 1,077 1,119 733,568 758,222 1,077 1,119

17. PLeDGeD time DePosits Total pledged time deposits as at the balance sheet date were as follows: Group 2006 2005 $’000 $’000

Pledge of US$3,153,000 (2005: US$2,032,000) for a cross currency swap agreement, note 21 4,846 3,385 Pledge of HK$10,000,000 for a bank guarantee, (a) 1,976 – 6,822 3,385

(a) As at 31 December 2006, a HK$10 million deposit was pledged to a bank for the bank guarantee given in respect of a rental deposit for a tenancy agreement entered into by the Group. The tenancy agreement will expire on 31 July 2011.

18. DeFeRReD tAx Assets Group Company 2006 2005 2006 2005 $’000 $’000 $’000 $’000

Balance at 1 January – – – – Tax benefit from accrued expenses available for offset against future taxable profits 1,071 – – – Exchange translation adjustment (34) – – – Balance at 31 December 1,037 – – –

The deferred tax assets in 2006 arose as a result of certain accrued expenses available for set-off against future taxable profits in a subsidiary company.





19. otHeR Assets Group Company 2006 2005 2006 2005 $’000 $’000 $’000 $’000

Insurance business: Mortgage loans and secured motor vehicle loans, (a) 9,717 11,218 – – Policy loans, (b) 51,732 51,844 – –

Other businesses:Amounts due from subsidiary companies, (c) – – 13,719 14,339Amounts due from associated companies, (d) 16,143 15,930 16,143 15,930

77,592 78,992 29,862 30,269

(a) Mortgage loans and secured motor vehicle loans are as follows: Group 2006 2005 $’000 $’000

Mortgage loans and secured motor vehicle loans 10,425 11,545 Less: Current portion, note 23 (708) (327) 9,717 11,218

The mortgage loans and secured motor vehicle loans are interest-bearing, at rates ranging from 6.75% to 12% (2005: 5% to 16%) per annum. Some of the loans are secured by underlying properties and/or motor vehicles, and are repayable in monthly instalments.

(b) The policy loans are made to policyholders and are secured by cash surrender value of policies. Policy loans are repayable at the discretion of the policyholders as long as the interest plus the principal of the loans do not equal or exceed the cash surrender value or until the policy matures. The policy loans are interest-bearing at a rate of 9% per annum.

(c) Amounts due from subsidiary companies are non-trade in nature, unsecured, interest-free and not expected to be repaid within one year.

(d) Amounts due from associated companies are non-trade in nature, unsecured, interest-free and not expected to be repaid within one year.

Other assets denominated in original currencies as at 31 December are as follows:

Group Company 2006 2005 2006 2005 $’000 $’000 $’000 $’000

Hong Kong dollar 21,302 21,092 132 432United States dollar 41,491 43,183 1,750 1,793Singapore dollar 14,799 14,717 27,980 28,044 77,592 78,992 29,862 30,269





20. sHoRt-teRm investments Group 2006 2005 $’000 $’000

Available-for-sale: – Quoted equity investments, at market value 49,458 295,841– Unquoted unit trusts, at fair value 34,134 87,969– Unquoted mutual funds, at fair value 76,580 179,855 160,172 563,665Fair value through profit or loss:– Unquoted unit trusts, at fair value 239,488 103,590– Quoted equity investments, at market value 46,293 –– Unquoted mutual funds, at fair value 127,955 – 413,736 103,590Held-to-maturity:– Quoted bonds, at amortised cost 27,088 – 600,996 667,255

Short-term investments denominated in original currencies as at 31 December are as follows:

Hong Kong dollar 43,914 64,605United States dollar 495,913 381,694Korean Won 18,747 84,807Singapore dollar – 42,275Japanese Yen 2,501 49,788European dollar 13,197 4,329Others 26,724 39,757 600,996 667,255

21. DeRivAtive FinAnCiAL instRuments Group 2006 2005 $’000 $’000

Options embedded in convertible bonds 260 907 Options embedded in callable bonds 834 1,278 Unquoted cross currency swap agreement, at fair value, (i) (6,288) (712) (5,194) 1,473 Portion classified as non-current financial liabilities – cross currency swap agreement 6,288 712 Current portion of derivative financial assets 1,094 2,185





21. DeRivAtive FinAnCiAL instRuments (Cont’D)

(i) The notional amount of the cross currency swap agreement is US$100 million (equivalent to $153.7 million) which indicates the nominal value of the transaction outstanding as at the balance sheet date. It does not represent the amount at risk.

As at 31 December 2006, the Group has pledged $4,846,000 (2005: $3,385,000) as cash collateral to the counterparty of the cross currency swap agreement, which has a maturity date of 17 December 2014. The deposits pledged are US$3,153,000 (2005: US$2,032,000) denominated in United States dollars (note 17).

The carrying amount of the cross currency swap agreement, embedded in exchangeable notes convertible bonds and callable bonds, is the same as their fair values.

Cross currency swap agreement – cash flow hedge As at 31 December 2006, the Group held a cross currency swap agreement designated as a hedge against expected future currency fluctuations in relation to the repayment of its interest-bearing loan of US$100 million which matures on 17 December 2014. The terms of the cross currency swap agreement are as follows:

exchange rate buy maturity us$ to HK$

US$100 million 17 December 2014 7.777

The terms of the cross currency swap agreement have been negotiated to match the terms of the interest-bearing loan. The cash flow hedge of expected future foreign currency fluctuations in relation to the repayment of the interest-bearing loan was assessed to be highly effective. A net loss attributable to equity holders of the Company of $2,845,000 (2005: $94,000) was included in cash flow hedge reserve.

22. inventoRies

Inventories comprise the following: Group 2006 2005 $’000 $’000

Consumable materials 20 24





23. tRADe AnD otHeR ReCeivAbLes Group Company 2006 2005 2006 2005 $’000 $’000 $’000 $’000

Insurance business:Premiums receivable 13,829 19,015 – –Reinsurance assets, note 31 379 421 – –Deposits, (a) 34,484 5,457 – –Prepayments 25,396 25,878 – –Other debtors 19,757 13,834 – –Current portion of mortgage loans and secured motor vehicle loans, note 19 708 327 – –

Other businesses :Amounts due from related parties, (b) – 6 – –Trade and other receivables, (c) 11,660 13,404 9,614 12,877 106,213 78,342 9,614 12,877

(a) At 31 December 2006, included in deposits is an amount of $29,100,000 which is the deposit for the purchase of certain land and building as detailed in note 43(b).

(b) Amounts due from related parties are non-trade related, unsecured, interest-free and repayable on demand.

(c) Trade and other receivables included in other businesses:

Trade receivables 7,841 9,028 7,752 7,752 Other receivables, (i) 86,976 84,759 22,805 22,298 Amounts due from subsidiary companies, (ii) – – 709 7,541 Amounts due from associated companies, (iii) 1,151 1,923 – – 95,968 95,710 31,266 37,591 Less: Allowance for doubtful debts (84,308) (82,306) (21,652) (24,714) 11,660 13,404 9,614 12,877 (i) Other receivables Amount receivable on sale of an associated company, (d) 59,776 59,776 – – Deposits 2,212 2,212 2,212 2,212 Other receivables and prepaid expenses 24,988 22,771 20,593 20,086 86,976 84,759 22,805 22,298 Allowance for other doubtful debts charged to profit and loss account 1,408 2,024 1,408 2,024

(ii) Amounts due from subsidiary companies are non-trade in nature, unsecured, interest-free and repayable on demand.

(iii) Amounts due from associated companies are non-trade in nature, unsecured, interest-free and repayable on demand.





23. tRADe AnD otHeR ReCeivAbLes (Cont’D)

(d) The amount receivable on sale of an associated company amounting to $59,776,000 was fully provided for in 1999. The background to this debt is as follows:

In 1995, the Company’s 51%-owned subsidiary company, Gladioli Investments Pte Ltd (“Gladioli”), disposed of its 39% equity interest in an associated company, Bugis City Holdings Pte Ltd (“BCH”) to Montien International Limited (“Montien”). Montien was a shareholder of Gladioli.

The value of the sale of the 39% shareholding in BCH was $251 million of which $185 million represented the cash consideration payable by Montien to Gladioli and $66 million represented the outstanding shareholders’ loan from Gladioli to BCH which Montien undertook on completion.

In connection with this disposal, the Company purchased from Montien its 49% stake in Gladioli. The value of this transaction was $123 million, of which $91 million represented cash consideration payable by the Company to Montien and $32 million represented an outstanding shareholders’ loan, repayment of which was procured by the Company on completion.

The sale resulted in an extraordinary gain of about $58 million for the Group in the year ended 31 December 1995. The sale was completed in July 1996. Interest has been charged on the outstanding balance in accordance with the sale and purchase agreement.

The receivable is secured by a second charge against 69,576,000 shares in BCH and by a guarantee given by a Madam Endang Utari Mokodompit. On 31 March 2003, a judgement debt in the sum of $70,244,000 was given against Madam Endang Utari Mokodompit as well as Montien. As at 31 December 2006, the amount due, inclusive of interest, was $72,413,000. However, the Company has not recognised any amount beyond the amount receivable of $59,776,000 as mentioned above.

Trade and other receivables denominated in original currencies as at 31 December are as follows:

Group Company 2006 2005 2006 2005 $’000 $’000 $’000 $’000

Hong Kong dollar 89,667 60,844 – 491United States dollar 13,396 14,445 7,692 8,332Singapore dollar 3,046 3,048 1,922 4,054Others 104 5 – – 106,213 78,342 9,614 12,877





24. tRADe PAyAbLes AnD ACCRuALs Group Company 2006 2005 2006 2005 $’000 $’000 $’000 $’000

Insurance business:Claims payable 13,568 13,967 – –Commissions payable 20,355 18,777 – –Other payables and accruals 52,524 38,124 – –

Other businesses:Amounts due to subsidiary companies, (a) – – 279,226 5,000Amounts due to associated companies, (a) 12 522 10 405Amounts due to related parties, (a) – 1,329 – –Amounts due to minority shareholders of subsidiary companies, (b) 2,762 3,246 – –Withholding tax payable for convertible bonds redemption – 3,691 – 3,691Other trade payables and accruals 17,087 6,609 8,791 2,149 106,308 86,265 288,027 11,245

(a) Amounts due to subsidiary companies, associated companies and related parties are non-trade in nature, unsecured and repayable on demand.

(b) Amounts due to minority shareholders of subsidiary companies of $2,762,000 (2005: $3,246,000) are non-trade related, unsecured, interest-free and are repayable on demand.

Trade payables and accruals denominated in original currencies as at 31 December are as follows:

Hong Kong dollar 76,570 60,167 274,236 405United States dollar 21,453 16,419 6,480 3,691Singapore dollar 8,236 7,007 7,311 7,149Others 49 2,672 – – 106,308 86,265 288,027 11,245

25. DePosits ReCeiveD Group 2006 2005 $’000 $’000 Insurance business: Premium deposits, (a) 14,533 17,256 Other businesses: Deposits received – 7 14,533 17,263

(a) Premium deposits are amounts that are left in deposits with the Group for payment of future premiums.





26. bAnK boRRowinGs Group Company 2006 2005 2006 2005 $’000 $’000 $’000 $’000

Secured Secured bank loans, (a) 758,906 – 473,430 – Unsecured Unsecured bank loans, (b) – 299,998 – 299,998 758,906 299,998 473,430 299,998

(a) The secured bank loans for both the Group and the Company are denominated in Hong Kong dollars. The loans were secured on PCCW shares held by the Company (note 13). The secured bank loans are payable on demand and bear effective interest rates ranging from 4.64% to 5.27% (2005: 2.78% to 3.42%) per annum.

(b) The unsecured bank loans were fully repaid in 2006. The bank loans bear effective interest rates ranging from 4.06% to 4.91% (2005: 2.27% to 5.01%) per annum.

Bank borrowings denominated in original currencies as at 31 December are as follows:

Hong Kong dollar 758,906 292,974 473,430 292,974Singapore dollar – 7,024 – 7,024 758,906 299,998 473,430 299,998

27. exCHAnGeAbLe bonDs

On 29 August 2000, the Company entered into a subscription agreement (“2000 Agreement”) with AIG Asian Infrastructure Fund II LP, American International Assurance Company (Bermuda) Limited and AIG Asian Opportunity Fund L.P. (collectively the “Bondholders”) pursuant to which the bondholders subscribed for secured redeemable exchangeable bonds due 2006 with an aggregate principal value of US$200 million (the “Bonds”).

On 11 August 2001, the Bondholders agreed to subscribe for secured redeemable exchangeable bonds of aggregate principal value of US$250 million (“New Bonds”). Part of the proceeds from these New Bonds was used to settle the Bonds of US$200 million.

The terms of the agreement relating to the New Bonds remained the same as that of the 2000 Agreement except that the initial exchange price was HK$2.29 per share of PCCW Limited (“PCCW”) share. Each Bondholder had the right at any time up to and including the sixth anniversary of the date of issue of the Bonds, to exchange all or any of the Bonds held by it for ordinary shares in the capital of PCCW held by the Company. The initial exchange price of HK$2.29 per PCCW share was subject to adjustment in the manner set out in the deed poll constituting the New Bonds.

Following the consolidation of PCCW shares in January 2003, the initial exchange price per PCCW share of HK$2.29 was adjusted to HK$11.45.

The terms of the Bonds provide for adjustments to be made to the exchange price for the Bonds as a result of any new issue of shares by PCCW wholly for cash at less than 93% of the average market price of PCCW shares.





27. exCHAnGeAbLe bonDs (Cont’D)

On 17 July 2003, PCCW issued 715,000,000 new ordinary shares of par value HK$0.25 each at a price of HK$4.40 per PCCW share, a price which was less than 93% of the then average market price (the “Placement”). As a result of the Placement, and according to the terms of the Bonds, the exchange price was reduced from HK$11.45 to HK$11.31 per PCCW share.

The exchange price of the Bonds was further amended, following the deconsolidation of PCCW. The deconsolidation would have breached certain terms of the Bonds, potentially triggering an event of default. Accordingly, the Company sought and obtained a waiver from the bondholders of those terms and, pursuant to the waiver granted, the Company agreed to reduce and reset the exchange price to HK$8.50; and also provided that on a date falling 180 days prior to the fourth anniversary of the New Bonds issue date (the “Exchange Price Reset Date”), the exchange price would be further adjusted to the lower of HK$8.50 or an amount per PCCW share calculated at 110% of the average closing quotations of the PCCW share for the 60 trading days prior to the Exchange Price Reset Date.

Unless previously exchanged or otherwise redeemed or purchased or cancelled, the New Bonds were redeemable by the Company on the sixth anniversary date of the issue of the New Bonds. Subject to the terms of and in certain circumstances as stated in the deed poll, the Company was entitled to redeem the New Bonds on or at any time after the fourth anniversary of the issue of the New Bonds. In the event that the New Bonds were redeemed, compound interest was payable on the principal value of the New Bonds at a rate of 3% per annum.

On 7 December 2005, the Company redeemed US$100 million of the New Bonds at an aggregate redemption price of US$112.5 million. The balance of principal and accrued interest amounting to $281,893,000 as at 31 December 2005 was reclassified to current liabilities.

On 7 December 2006, the Company redeemed the remaining New Bonds of US$150 million, equivalent to $238 million

(2005: $253 million).

Following the redemption of the New Bonds, the security of fixed legal mortgages over certain PCCW shares owned by the Company was fully discharged.

28. LonG-teRm LiAbiLities Group Company 2006 2005 2006 2005 $’000 $’000 $’000 $’000

Amount owing to holding company, (a) – 237,309 – 237,309 Unsecured bonds, (b) 152,385 165,095 – – 152,385 402,404 – 237,309

(a) This represents an amount owing to the Company’s immediate holding company of $237 million. The amount was non-trade in nature, unsecured and non-interest bearing. The full amount was repaid in January 2006 through new bank facilities.





28. LonG-teRm LiAbiLities (Cont’D)

(b) On 17 December 2004, a wholly-owned subsidiary of PCIH, Pacific Century Insurance Capital Limited (“PCI Capital”) issued bonds with an aggregate principal amount of US$100 million or approximately $165 million with a coupon of 5.875% (“PCI Bonds”) due 17 December 2014 to independent third party investors.

Interest on the PCI Bonds is payable on 17 June and 17 December each year, beginning on 17 June 2005. The PCI Bonds are fully and unconditionally guaranteed by its immediate holding company, PCIH. The PCI Bonds are quoted on the Main Board of the Singapore Exchange Securities Trading Limited and under the provisions of Rule 144A of the United States Securities Act.

The bonds will fully mature on 17 December 2014. The effective interest rate on the bonds is 6.12% (2005: 6.12%) per annum. The amortised value of the interest bearing loan is $152,385,000 (2005: $165,095,000).

29. PoLiCyHoLDeRs’ DiviDenDs AnD bonuses Group 2006 2005 $’000 $’000

As at 1 January 165,851 140,681 Provided during the year 53,330 43,570 Utilised during the year (25,412) (20,932) Exchange translation adjustment (13,019) 2,532 As at 31 December 180,750 165,851

Policyholders’ dividends and bonuses denominated in original currencies as at 31 December are as follows:

Hong Kong dollar 129,494 129,224United States dollar 51,256 36,627 180,750 165,851

30. FutuRe insuRAnCe LiAbiLities unDeR investment ContRACts Movements in future insurance liabilities under investment contracts are as follows: Group 2006 2005 $’000 $’000

As at 1 January 117,524 101,511 Discontinued operation at 1 January – (5,958) Deposits 67,122 37,332 Withdrawals (35,076) (22,358) Charges (2,039) (1,262) Interest credited 20,593 6,283 Exchange translation adjustment (8,545) 1,976 As at 31 December 159,579 117,524





30. FutuRe insuRAnCe LiAbiLities unDeR investment ContRACts (Cont’D)

Future insurance liabilities under investment contracts denominated in original currencies as at 31 December are as follows:

Group 2006 2005 $’000 $’000

Hong Kong dollar 26,728 45,420United States dollar 118,866 67,269Others 13,985 4,835 159,579 117,524

31. FutuRe insuRAnCe LiAbiLities unDeR insuRAnCe ContRACts

Future insurance liabilities under insurance contracts comprise guaranteed benefits liabilities, coinsurance liabilities and provision for policyholder dividends earned. Guaranteed benefits liabilities take into account future guaranteed benefit payments and premium receipts. Coinsurance liabilities are set aside to fund future payments for coinsurance arrangements. The provision for dividends represents half of the expected annual policyholder dividends payable in 2007 as this is considered to have been earned in 2006.

Group 2006 2005 $’000 $’000

Guaranteed benefits liabilities 1,112,694 1,047,489 Coinsurance liabilities 24,681 28,563 Provision for dividends 9,830 9,529 Future insurance liabilities under insurance contracts 1,147,205 1,085,581 Reinsurer’s share of liabilities, note 23 (379) (421) Net liabilities 1,146,826 1,085,160

Future insurance liabilities under insurance contracts denominated in original currencies as at 31 December are as follows:

Hong Kong dollar 469,686 412,944United States dollar 676,894 672,482Others 625 155 1,147,205 1,085,581





31. FutuRe insuRAnCe LiAbiLities unDeR insuRAnCe ContRACts (Cont’D)

Group year 2006 year 2005 insurance Reinsurer’s insurance Reinsurer’s contracts Coinsurance share of net contracts Coinsurance share of net liabilities liabilities liabilities liabilities liabilities liabilities liabilities liabilities $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Unit-linked 29,258 – (6) 29,252 25,243 – (7) 25,236 With fixed and guaranteed terms 1,093,266 24,681 (373) 1,117,574 1,031,775 28,563 (414) 1,059,924 1,122,524 24,681 (379) 1,146,826 1,057,018 28,563 (421) 1,085,160 Movements in future insurance liabilities under insurance contracts are as follows:

As at 1 January 1,057,018 28,563 (421) 1,085,160 894,194 33,571 (411) 927,354 Premiums received 274,414 (16,375) (11,414) 246,625 270,715 (21,288) (11,985) 237,442 Liabilities upon death, surrender and maturity (124,196) 6,764 5,698 (111,734) (109,388) 7,069 2,741 (99,578) Benefits and claims experience variations (55,746) – 5,724 (50,022) (64,569) – 9,243 (55,326) Investment income variations (58,491) – – (58,491) 13,137 – – 13,137 Investment income and changes in unit price 112,752 1,793 – 114,545 36,121 2,250 – 38,371 Financing cost for coinsurance – 6,233 – 6,233 – 6,256 – 6,256 Exchange realignment (83,227) (2,297) 34 (85,490) 16,808 705 (9) 17,504 As at 31 December 1,122,524 24,681 (379) 1,146,826 1,057,018 28,563 (421) 1,085,160





31. FutuRe insuRAnCe LiAbiLities unDeR insuRAnCe ContRACts (Cont’D) Life insurance contracts liabilities – assumptions and sensitivities

(a) Key assumptions

Liabilities on insurance contracts offered by the insurance subsidiary of the Group are predominantly conventional whole life insurance for which premiums are paid for a limited period of time or the whole of life, with fixed benefits paid upon death, surrender benefits increasing with the duration of policy. Some plans provide for guaranteed periodic payments. Most of the whole life insurance products are entitled to annual dividends and some with terminal dividend upon policy termination. For this block of policies and also for endowment and level term products, the assumptions used for the determination of future liabilities are:

Mortality rate: 150% 1993 Hong Kong Assured Life Mortality table, plus 0.2 per 1,000.

Interest rate: 5.5% for policies with dividends and 4.0% for policies without dividends.

The method of calculating liabilities is net level premium reserve, with cash value floor plus an adjustment to remove future valuation strain.

For unit-linked funds, liabilities are the fund account values.

For insurance with pure risk coverage such as accident benefit, dread disease, medical insurance and disability insurance, liabilities are the unearned gross premiums.

The Group’s investment returns on the investment assets backing the insurance fund, including realised and unrealised gains and losses, for the past five years are:

2002 8.03% 2003 9.91% 2004 7.09% 2005 6.62% 2006 8.81%

The Group’s actual claims as compared to the mortality experience assumed in the calculation of the future insurance contract liabilities for the past five years are:

2002 92% 2003 65% 2004 58% 2005 51% 2006 61%





31. FutuRe insuRAnCe LiAbiLities unDeR insuRAnCe ContRACts (Cont’D)

(b) Sensitivities impact impact impact Assumption on gross on net on profit impact change liabilities liabilities before tax on equity $’000 $’000 $’000 $’000

2006 Mortality/morbidity +10% 17,313 17,313 (17,313) (17,313) Investment return -0.5% 58,596 58,596 (58,596) (58,596) 2005 Mortality/morbidity +10% 15,046 15,046 (15,046) (15,046) Investment return -0.5% 45,852 45,852 (45,852) (45,852)

32. DeFeRReD tAx LiAbiLities Group Company 2006 2005 2006 2005 $’000 $’000 $’000 $’000

Balance at 1 January 6,471 6,559 6,471 6,559 Exchange translation adjustment (521) (88) (521) (88) Balance at 31 December 5,950 6,471 5,950 6,471

A deferred tax liability was provided in respect of certain unremitted earnings of the Company. These earnings would be brought to tax by the tax authorities when they are eventually remitted into Singapore.

33. otHeR LiAbiLities Group Company 2006 2005 2006 2005 $’000 $’000 $’000 $’000

Amounts due to subsidiary companies – – 133,186 133,350 Other long-term creditor 81 101 – – 81 101 133,186 133,350

The amounts due to subsidiary companies are non-trade in nature, unsecured, interest-free and not expected to be repaid within the next 12 months.





34. sHARe CAPitAL Group and Company 2006 2005 $’000 $’000

Issued and fully paid At 1 January 309,627 309,627 Transfer of share premium reserve to share capital 146,286 – Transfer of capital redemption reserve to share capital 1,370 – At 31 December 457,283 309,627

The holders of ordinary shares are entitled to receive dividends as and when declared by the Company. All ordinary shares carry one vote per share without restriction.

During the year, a total of 200,000 options were cancelled.

On 30 January 2006, in accordance with the Companies (Amendment) Act 2005 the shares of the Company ceased to have a par value and the amount standing in the share premium reserve and capital redemption reserve became part of the Company’s share capital.

35. sHARe oPtions The Company has no share options granted after 22 November 2002 that were not yet vested at 1 January 2005. Accordingly,

FRS 102 has no impact on the Company. However, FRS 102 impacts a listed subsidiary of the Group, Pacific Century Insurance Holdings Limited. As at 31 December 2006, the subsidiary had 39,432,582 (2005: 61,021,268) outstanding share options. Details of the share options outstanding during the year ended 31 December 2006 were as follows:



35. sHARe oPtions (Cont’D)

number of share options Price of subsidiary’s shares#

exercise immediately As at As at Granted exercised Lapsed expired Forfeited As at 31 price As at grant before the exercise 1 January during during during during during December Date of grant of exercise period of share date of exercise date of 2006 the year the year the year the year the year 2006 share options vesting period of share options options* options date options HK$ HK$ HK$ HK$

(i) Directors In aggregate 17,856,000 – – – (4,464,000) – 13,392,000 7 July 1999 7 July 2000 to 7 July 2000 to 5.233 – – – 7 July 2004 6 July 2009 8,000,000 – – – – – 8,000,000 20 June 2003 20 June 2004 to 20 June 2004 to 1.620 – – – 20 March 2006 19 March 2011 8,000,000 – (4,000,000) – – – 4,000,000 29 August 2003 29 August 2004 to 29 August 2004 to 2.050 – 4.00 4.05 29 August 2006 28 August 2011 800,000 – – – – – 800,000 3 March 2005 3 March 2006 to 3 March 2006 to 3.675 – – – 3 March 2008 2 March 2013 34,656,000 – (4,000,000) – (4,464,000) – 26,192,000 (ii) Employees of the subsidiary In aggregate 410,400 – – – (257,040) – 153,360 7 July 1999 7 July 2000 to 7 July 2000 to 4.187 – – – 7 July 2002 6 July 2007 220,320 – – (103,680) (38,880) – 77,760 7 July 1999 7 July 2000 to 7 July 2000 to 4.448 – – – 7 July 2004 6 July 2009 4,400,000 – (2,280,000) (280,000) – – 1,840,000 29 August 2003 29 August 2004 to 29 August 2004 to 2.050 – 3.55 3.56 29 August 2006 28 August 2011 2,640,000 – – – – – 2,640,000 2 March 2004 2 March 2005 to 2 March 2005 to 3.840 – – – 2 March 2007 1 March 2012 1,080,000 – (240,000) – – – 840,000 4 October 2004 4 October 2005 to 4 October 2005 to 2.825 – 4.10 4.11 4 October 2007 3 October 2012 210,000 – – – – – 210,000 19 May 2005 19 May 2006 to 19 May 2006 to 3.125 – – – 19 May 2008 18 May 2013 – 120,000 – – – – 120,000 19 May 2005 4 April 2007 to 4 April 2007 to 3.680 3.70 – – 4 April 2009 3 April 2014 8,960,720 120,000 (2,520,000) (383,680) (295,920) – 5,881,120 (iii) Others In aggregate 2,069,916 – (72,000) (89,160) (940,158) – 968,598 7 July 1999 7 July 2000 to 7 July 2000 to 4.187 – 4. 61 4.60 7 July 2002 6 July 2007 2,222,592 – (4,320) (40,320) (632,568) – 1,545,384 7 July 1999 7 July 2000 to 7 July 2000 to 4.448 – 4.65 4.60 7 July 2004 6 July 2009 62,040 – – (1,680) (59,880) – 480 7 July 1999 7 July 2000 to 7 July 2000 to 5.233 – – – 7 July 2004 6 July 2009 10,850,000 – (8,205,000) – – – 2,645,000 29 August 2003 29 August 2004 to 29 August 2004 to 2.050 – 3.88 3.89 29 August 2006 28 August 2011 2,200,000 – – – – – 2,200,000 3 March 2005 3 March 2006 to 3 March 2006 to 3 March 2008 2 March 2013 3.675 – – – 17,404,548 – (8,281,320) (131,160) (1,632,606) – 7,359,462 Total 61,021,268 120,000 (14,801,320) (514,840) (6,392,526) – 39,432,582





35. sHARe oPtions (Cont’D)

number of share options Price of subsidiary’s shares#

exercise immediately As at As at Granted exercised Lapsed expired Forfeited As at 31 price As at grant before the exercise 1 January during during during during during December Date of grant of exercise period of share date of exercise date of 2006 the year the year the year the year the year 2006 share options vesting period of share options options* options date options HK$ HK$ HK$ HK$

(i) Directors In aggregate 17,856,000 – – – (4,464,000) – 13,392,000 7 July 1999 7 July 2000 to 7 July 2000 to 5.233 – – – 7 July 2004 6 July 2009 8,000,000 – – – – – 8,000,000 20 June 2003 20 June 2004 to 20 June 2004 to 1.620 – – – 20 March 2006 19 March 2011 8,000,000 – (4,000,000) – – – 4,000,000 29 August 2003 29 August 2004 to 29 August 2004 to 2.050 – 4.00 4.05 29 August 2006 28 August 2011 800,000 – – – – – 800,000 3 March 2005 3 March 2006 to 3 March 2006 to 3.675 – – – 3 March 2008 2 March 2013 34,656,000 – (4,000,000) – (4,464,000) – 26,192,000 (ii) Employees of the subsidiary In aggregate 410,400 – – – (257,040) – 153,360 7 July 1999 7 July 2000 to 7 July 2000 to 4.187 – – – 7 July 2002 6 July 2007 220,320 – – (103,680) (38,880) – 77,760 7 July 1999 7 July 2000 to 7 July 2000 to 4.448 – – – 7 July 2004 6 July 2009 4,400,000 – (2,280,000) (280,000) – – 1,840,000 29 August 2003 29 August 2004 to 29 August 2004 to 2.050 – 3.55 3.56 29 August 2006 28 August 2011 2,640,000 – – – – – 2,640,000 2 March 2004 2 March 2005 to 2 March 2005 to 3.840 – – – 2 March 2007 1 March 2012 1,080,000 – (240,000) – – – 840,000 4 October 2004 4 October 2005 to 4 October 2005 to 2.825 – 4.10 4.11 4 October 2007 3 October 2012 210,000 – – – – – 210,000 19 May 2005 19 May 2006 to 19 May 2006 to 3.125 – – – 19 May 2008 18 May 2013 – 120,000 – – – – 120,000 19 May 2005 4 April 2007 to 4 April 2007 to 3.680 3.70 – – 4 April 2009 3 April 2014 8,960,720 120,000 (2,520,000) (383,680) (295,920) – 5,881,120 (iii) Others In aggregate 2,069,916 – (72,000) (89,160) (940,158) – 968,598 7 July 1999 7 July 2000 to 7 July 2000 to 4.187 – 4. 61 4.60 7 July 2002 6 July 2007 2,222,592 – (4,320) (40,320) (632,568) – 1,545,384 7 July 1999 7 July 2000 to 7 July 2000 to 4.448 – 4.65 4.60 7 July 2004 6 July 2009 62,040 – – (1,680) (59,880) – 480 7 July 1999 7 July 2000 to 7 July 2000 to 5.233 – – – 7 July 2004 6 July 2009 10,850,000 – (8,205,000) – – – 2,645,000 29 August 2003 29 August 2004 to 29 August 2004 to 2.050 – 3.88 3.89 29 August 2006 28 August 2011 2,200,000 – – – – – 2,200,000 3 March 2005 3 March 2006 to 3 March 2006 to 3 March 2008 2 March 2013 3.675 – – – 17,404,548 – (8,281,320) (131,160) (1,632,606) – 7,359,462 Total 61,021,268 120,000 (14,801,320) (514,840) (6,392,526) – 39,432,582





35. sHARe oPtions (Cont’D) Notes to the reconciliation of share options outstanding during the year:

* The exercise price of the share options is subject to adjustment in the case of rights or bonus shares, or other similar changes in the subsidiary’s share capital.

# The price of the subsidiary’s shares disclosed as at the date of the grant of the share options is its closing price on the Stock Exchange of Hong Kong on the trading day immediately prior to the date of the grant of the options. The price of the subsidiary’s shares disclosed immediately before the exercise date of the share options is the weighted average of its closing prices on the Stock Exchange of Hong Kong immediately before the dates on which the options were exercised over all of the exercises of options within the disclosure line.

## No share option was cancelled during the year ended 31 December 2006.

The fair value of equity-settled share options granted is estimated at the date of grant using the Black-Scholes option pricing model, taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the model used for the years ended 31 December 2006 and 31 December 2005.

2006 2005

Exercise price (HK$) 3.680 3.125 Dividend yield (%) 1.6273 1.8740 Expected volatility (%) 30.52 43.60 Historical volatility (%) 30.52 43.60 Risk-free interest rate (%) 4.575 3.783 Expected life of option years 6-8 6-8 Weighted average share price at grant date (HK$) 3.6517 3.1295

The expected life of the options is based on the historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.

No other features of options grant was incorporated into the measurement of fair value.

14,801,320 share options were exercised during the year. This resulted in the issue of the same number of shares of the subsidiary company.





36. otHeR ReseRves Group Company 2006 2005 2006 2005 $’000 $’000 $’000 $’000

(a) Capital reserve Balance at 1 January 95 679 1,370 1,370 Change in interest in a subsidiary 1,235 347 – – Movement in equity component of convertible notes and bonds 40 (931) – – Transfer to share capital (1,370) – (1,370) – Balance at 31 December – 95 – 1,370

(b) Translation reserve Movements of translation reserves arise mainly as a result of differences arising from the translation of the

financial statements of companies in the Group whose functional currencies are different from that of the Group’s presentation currency.

Balance at 1 January 800 (6,970) (4,557) – Current year movement 45,277 7,770 (26,527) – Translation adjustment arising from conversion to presentation currency – – – (4,557) Balance at 31 December 46,077 800 (31,084) (4,557) Movement during the year: – Subsidiary companies (33,753) (2,578) – – – Associated companies 79,030 10,348 – – 45,277 7,770 – –





36. otHeR ReseRves (Cont’D) Group Company 2006 2005 2006 2005 $’000 $’000 $’000 $’000

(c) Equity share compensation reserve Equity share compensation reserve represents the equity-settled share options granted to employees of a subsidiary

(note 2.4b).

Balance at 1 January 3,045 995 – – Current year addition/(utilisation) (2,467) 2,050 – – Balance at 31 December 578 3,045 – – Addition during the year comprised: – Grant of equity-settled share options by a subsidiary, net (323) 899 – – – Share of equity share compensation reserve of an associated company (2,144) 1,151 – – (2,467) 2,050 – – (d) Cash flow hedge reserve

Cash flow hedge reserve arises from a cross currency swap agreement by a subsidiary designated to match the terms

of an interest-bearing loan of US$100 million which matures on 17 December 2014. During the year, a net loss of $2,845,000 (2005: $94,000) net of minority interest was included in the hedging reserve assessed from future foreign fluctuations related to the repayment of the loan.

Balance at 1 January (94) – – –Net loss on fair value changes during the year (22,830) (94) – –Balance at 31 December (22,924) (94) – –

Movement during the year: – Subsidiary companies (2,845) (94) – –– Associated companies (19,985) – – – (22,830) (94) – –





36. otHeR ReseRves (Cont’D) Group Company 2006 2005 2006 2005 $’000 $’000 $’000 $’000

(e) Fair value reserve

Fair value reserve records the cumulative fair value changes of available-for-sale financial assets until they are derecognised or impaired.

Balance at 1 January 23,615 – (400) –Fair value gain/(loss) on available-for-sale investments (6,298) 23,615 (44) (400)Balance at 31 December 17,317 23,615 (444) (400)

Current year movement arises from:– Net gain /(loss) on fair value changes during the year 17,325 23,430 (44) (400)– Realised gain on fair value changes during the year transferred to profit and loss (23,909) (4,159) – –– Impairment loss of an available-for-sale financial assets (transferred to profit and loss) 733 – – –– Share of associates’ net (loss)/gain on fair value changes (447) 4,344 – – (6,298) 23,615 (44) (400)

Total other reserves 41,048 27,461 (31,528) (3,587)





37. CAsH AnD CAsH equivALents Cash and cash equivalents included in the consolidated statement of cash flows consist of the following amounts in the

balance sheet: Group 2006 2005 $’000 $’000 Cash and bank balances 110,826 256,515 Fixed deposits 415,323 50,896 526,149 307,411

Cash and cash equivalents denominated in original currencies as at 31 December are as follows:

Group Company 2006 2005 2006 2005 $’000 $’000 $’000 $’000

Hong Kong dollar 110,865 126,343 17,970 911Singapore dollar 607 797 379 260United States dollar 386,447 166,493 1,659 315Chinese Renminbi 12,299 13,778 – – Taiwan dollar 527 – – – Others 15,404 – – – 526,149 307,411 20,008 1,486

Cash at bank earns interest at floating rates based on daily bank deposit rates ranging from 2.50 % to 5.22% (2005: 0.01% to 2.50%) per annum. Short-term deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates.

As at 31 December 2006, the Group had available, $130,450,000 (2005: $60,986,000) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met.





38. FutuRe CAPitAL exPenDituRes

Capital expenditures not provided for in the financial statements are as follows: Group 2006 2005 $’000 $’000

Commitments contracted but not provided for in the accounts, in respect of the purchase of the followings: – Investment property, note 43 (b) 261,902 – – Computer equipment 1,635 47 – Furniture, fixtures and equipment 4,308 172 267,845 219

Commitments authorised but not contracted for, in respect of the purchase of the followings: – Computer equipment 3,124 7,883 – Furniture, fixtures and equipment 3,716 – 6,840 7,883

39. ContinGent LiAbiLities Company 2006 2005 $’000 $’000 (a) Corporate guarantees given to various bankers of subsidiary companies – for bank facilities, secured 285,475 – – in lieu of rental related deposits, unsecured 379 406

(b) On 21 September 2000, a writ was issued against a number of persons, including Pacific Century Insurance Company Limited (“PCI”), a subsidiary company of PCIH, and certain insurance agents of PCI, by certain members of an insurance group operating in Hong Kong (the “Plaintiffs”), whereby the Plaintiffs sought, among other things, injunctive relief and damages against PCI in connection with PCI’s plan matching scheme and the purported use of certain documents and information.

On 16 February 2007, PCI and certain insurance agents together reached a settlement with the Plaintiffs. Pursuant to the settlement, without any admission of liability or final determination of the merits of the respective cases of the parties involved, a payment of HK$39,800,000 was paid to the Plaintiffs. The aforesaid legal proceedings by the Plaintiffs against PCI and those insurance agents who have entered into the settlement have been dismissed. Such amount was fully provided by the Group as at 31 December 2006.





40. Commitments

(a) As lessor

The Group leases its investment properties (note 15) under operating lease arrangements, with leases negotiated for terms ranging from one to three years. The terms of the leases generally also require tenants to pay security deposits and provide for periodic rent adjustments according to the then prevailing market conditions.

As at 31 December 2006, the Group had total future minimum lease receivables under non-cancellable operating lease with its tenants falling due as follows:

Group 2006 2005 $’000 $’000

Payable within one year 259 266In the second to fifth years, inclusive 146 388 405 654

(b) As lessee

The Group leases certain of its office properties under operating lease arrangements. Leases for properties are negotiated for terms ranging from one to five years.

As at 31 December 2006, the Group had total future minimum lease payments under non-cancellable operating leases falling due as follows: Payable within one year 11,689 10,230Payable after one year but within five years 26,860 35,950Payable after five years – 4,228 38,549 50,408





41. seGment inFoRmAtion A segment is a distinguishable component of the Group that is engaged either in providing products or services (business

segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.

In accordance with the Group’s internal financial reporting procedures, the Group has chosen business segment information as the primary reporting format and geographical segment information as the secondary reporting format. Segment accounting policies are the same as the policies described in note 2.

Segment revenue, expenses, results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis to that segment. For example, segment assets may include inventories, trade receivables and property, plant and equipment. Segment revenue, expenses, assets and liabilities are determined before intra-group balances and intra-group transactions are eliminated as part of the consolidation process, except to the extent that such intra-group balances and transactions are between group enterprises within a single segment. Inter-segment pricing is based on similar terms to those available to other external parties.

Segment capital expenditure is the total cost incurred during the year to acquire segment assets (both tangible and intangible) that are expected to be used for more than one period.

Unallocated items mainly comprise financial and corporate assets, interest-bearing loans, borrowings, corporate and financing expenses and minority interests.

For the year ended 31 December 2006, the Group comprises the following main business segments:

(i) Infrastructure and Property covers the Group’s property portfolio in India, mainland China and Singapore.

(ii) Investment holdings include the Group’s overseas investments and the provision of management services within the Group.

(iii) Insurance covers the Group’s insurance operations in Hong Kong.

(iv) Hotel covers the Group’s hotel operations in Vietnam.



41. seGment inFoRmAtion (Cont’D) 2006: By Activity and Geographical Segment: Discontinued total Continuing operations operation operations

Hong Kong/ Hong Kong/China singapore vietnam india China infra- infra- infrastructure/ investment investment structure/ structure/ insurance property holding holding property Hotel property eliminations Consolidated insurance Consolidated $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

External revenue 406,618 – 1,347 594 – 2,343 – – 410,902 312 411,214 Inter-segment revenue – – – 1,543 – – – (1,543) – – – Total revenue 406,618 – 1,347 2,137 – 2,343 – (1,543) 410,902 312 411,214 Segment results 78,139 484 (968) (7,838) (522) 507 – 69,802 146 69,948 Operating profit 69,802 146 69,948 Net finance cost (54,836) – (54,836) Change in carrying values of associated companies: – Share of profits of associated companies 57,015 – 57,015 – Gain on deemed dilution 7,926 – 7,926 Profit before taxation 79,907 146 80,053 Taxation (3,675) – (3,675) Profit for the year 76,232 146 76,378 Segment assets 2,189,637 108 30 31,351 6,291 1,649 – 2,229,066 11,678 2,240,744 Associated companies – – 158 56,206 – – – 56,364 – 56,364 Unallocated corporate assets 110,824 – 110,824 Total assets 2,396,254 11,678 2,407,932 Segment liabilities 1,748,227 4,609 250 11,274 25 1,100 – 1,765,485 3,827 1,769,312 Unallocated corporate liabilities 773,943 – 773,943 Total liabilities 2,539,428 3,827 2,543,255 Other segment information: Capital additions 8,412 – – 3 – 9 – 8,424 – 8,424 Depreciation and amortisation 64,883 2 – 50 – 271 – 65,206 – 65,206





41. seGment inFoRmAtion (Cont’D) 2006: By Activity and Geographical Segment: Discontinued total Continuing operations operation operations

Hong Kong/ Hong Kong/China singapore vietnam india China infra- infra- infrastructure/ investment investment structure/ structure/ insurance property holding holding property Hotel property eliminations Consolidated insurance Consolidated $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

External revenue 406,618 – 1,347 594 – 2,343 – – 410,902 312 411,214 Inter-segment revenue – – – 1,543 – – – (1,543) – – – Total revenue 406,618 – 1,347 2,137 – 2,343 – (1,543) 410,902 312 411,214 Segment results 78,139 484 (968) (7,838) (522) 507 – 69,802 146 69,948 Operating profit 69,802 146 69,948 Net finance cost (54,836) – (54,836) Change in carrying values of associated companies: – Share of profits of associated companies 57,015 – 57,015 – Gain on deemed dilution 7,926 – 7,926 Profit before taxation 79,907 146 80,053 Taxation (3,675) – (3,675) Profit for the year 76,232 146 76,378 Segment assets 2,189,637 108 30 31,351 6,291 1,649 – 2,229,066 11,678 2,240,744 Associated companies – – 158 56,206 – – – 56,364 – 56,364 Unallocated corporate assets 110,824 – 110,824 Total assets 2,396,254 11,678 2,407,932 Segment liabilities 1,748,227 4,609 250 11,274 25 1,100 – 1,765,485 3,827 1,769,312 Unallocated corporate liabilities 773,943 – 773,943 Total liabilities 2,539,428 3,827 2,543,255 Other segment information: Capital additions 8,412 – – 3 – 9 – 8,424 – 8,424 Depreciation and amortisation 64,883 2 – 50 – 271 – 65,206 – 65,206



41. seGment inFoRmAtion (Cont’D)

2005: By Activity and Geographical Segment: Discontinued total Continuing operations operation operations

Hong Kong/ Hong Kong/China singapore vietnam india China infra- infra- infrastructure/ investment investment structure/ structure/ insurance property holding holding property Hotel property eliminations Consolidated insurance Consolidated $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 External revenue 391,154 44 803 – 49,952 2,289 – – 444,242 199 444,441 Inter-segment revenue – – – 2,123 – – – (2,123) – – – Total revenue 391,154 44 803 2,123 49,952 2,289 – (2,123) 444,242 199 444,441 Segment results 22,661 917 (883) (15,471) (383) 505 30 7,376 142 7,518 Operating profit 7,376 142 7,518 Net finance cost (67,265) – (67,265) Change in carrying values of associated companies: – Share of profits of associated companies 77,506 – 77,506 – Gain on deemed dilution 8,139 – 8,139 Profit before taxation 25,756 142 25,898 Taxation (5,386) (14) (5,400) Profit for the year 20,370 128 20,498 Segment assets 1,937,298 11 22 43,697 7,137 1,864 – 1,990,029 12,847 2,002,876 Associated companies – – 1,227 67,694 – – – 68,921 – 68,921 Unallocated corporate assets 224,817 – 224,817 Total assets 2,283,767 12,847 2,296,614 Segment liabilities 1,622,886 4,807 16 38,359 63 1,349 – 1,667,480 4,645 1,672,125 Associated companies – – – 522 – – – 522 – 522 Unallocated corporate liabilities 802,051 – 802,051 Total liabilities 2,470,053 4,645 2,474,698

Other segment information: Capital additions 4,323 – – 199 – 22 – 4,544 – 4,544 Depreciation and amortisation 64,849 2 – 40 – 278 – 65,169 – 65,169





41. seGment inFoRmAtion (Cont’D)

2005: By Activity and Geographical Segment: Discontinued total Continuing operations operation operations

Hong Kong/ Hong Kong/China singapore vietnam india China infra- infra- infrastructure/ investment investment structure/ structure/ insurance property holding holding property Hotel property eliminations Consolidated insurance Consolidated $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 External revenue 391,154 44 803 – 49,952 2,289 – – 444,242 199 444,441 Inter-segment revenue – – – 2,123 – – – (2,123) – – – Total revenue 391,154 44 803 2,123 49,952 2,289 – (2,123) 444,242 199 444,441 Segment results 22,661 917 (883) (15,471) (383) 505 30 7,376 142 7,518 Operating profit 7,376 142 7,518 Net finance cost (67,265) – (67,265) Change in carrying values of associated companies: – Share of profits of associated companies 77,506 – 77,506 – Gain on deemed dilution 8,139 – 8,139 Profit before taxation 25,756 142 25,898 Taxation (5,386) (14) (5,400) Profit for the year 20,370 128 20,498 Segment assets 1,937,298 11 22 43,697 7,137 1,864 – 1,990,029 12,847 2,002,876 Associated companies – – 1,227 67,694 – – – 68,921 – 68,921 Unallocated corporate assets 224,817 – 224,817 Total assets 2,283,767 12,847 2,296,614 Segment liabilities 1,622,886 4,807 16 38,359 63 1,349 – 1,667,480 4,645 1,672,125 Associated companies – – – 522 – – – 522 – 522 Unallocated corporate liabilities 802,051 – 802,051 Total liabilities 2,470,053 4,645 2,474,698

Other segment information: Capital additions 4,323 – – 199 – 22 – 4,544 – 4,544 Depreciation and amortisation 64,849 2 – 40 – 278 – 65,169 – 65,169





42. FinAnCiAL instRuments

Financial risk management objectives and policies

The Group’s exposure to the following types of risk arises in the normal course of business. The policies for managing these risks are summarised below.

Interest rate risk

The Group obtains additional financing through secured and unsecured bank loans. The Group’s policy is to obtain the most favourable interest rates available. Information relating to the Group’s interest rate exposure is also disclosed in note 26.

Surplus funds, if any, are placed with reputable banks.

Foreign currency risk

The Group incurs foreign currency risk on transactions and balances that are denominated in currencies other than Hong Kong dollars. The currency giving rise to this risk was primarily United States dollar.

The Group, except for its insurance business, does not engage in foreign currency hedging on its foreign currency exposures but such exposures are monitored by management on an ongoing basis.

Liquidity risk

Short-term funding is obtained from overdraft facilities, refinancing of short-term borrowings and bank loans. The Group manages this risk by monitoring working capital projections, taking into account the available banking and other borrowing facilities of the Group, and ensuring that the Group has adequate working capital to meet current requirements.

Credit risk

The Group has no significant concentration of credit risk with any single counterparty and monitors its exposure to credit risks arising from sales to customers on an on-going basis, evaluating customers that require credit. The Group only deals with pre-approved counterparties with good credit ratings, and imposes a cap on the amount to be transacted with any single counterparty so as to reduce its concentration of risk.

Insurance risk

The Group’s insurance segment is in the business of insuring against the risk of mortality, morbidity, disability, critical illness, accidents and related risks. It retains a maximum of US$100,000 for each risk it insures, with the excess being reinsured through surplus treaties, coinsurance treaties, facultative reinsurance, and catastrophe treaties with reputable international reinsurers. Consequently, total claims payable in any given year can be predicted with a high degree of precision. Over the last five years, the actual claims in each year have been less than expected. As part of the Group’s insurance segment quality control process, reinsurers are invited to audit its underwriting and claim practices and procedures, to ensure that they meet the highest industry standards.





42. FinAnCiAL instRuments (Cont’D)

Price risk

The Group’s price risk arises mainly within the insurance segment. It relates to financial assets and liabilities whose values will fluctuate as a result of changes in market prices, principally investment securities not held for the account of unit-linked business.

Such investment securities are subject to price risk due to changes in market values of instruments arising either from factors specific to individual instruments or their issuers or factors affecting all instruments traded in the market.

The Group’s price risk policy requires it to manage such risk by setting and monitoring objectives and constraints on investments and diversification plans, and to limit the investment in each country, sector and market.

The Group has actively refined its investment model through the use of the Value at Risk (VaR) technique to measure portfolio risks and performance. As at the balance sheet date, the value at risk on its equity portfolio, being measured at 95% confidence level for a monthly time span, was 6.0% of the equity portfolio size. The similar value at risk on its hedge fund portfolio was 3.2% of the hedge fund portfolio size.

Fair value

The fair value of a financial instrument is the amount at which the instrument could be exchanged or settled between knowledgeable and willing parties in an arm’s length transaction, other than in a forced or liquidation sale.

The following methods and assumptions are used to estimate the fair value of each class of financial instrument where practicable.

Available-for-sale and fair value through profit and loss financial assets, derivatives financial instruments

The Group has carried all available-for-sale and fair value through profit and loss financial assets and derivatives financial instruments at their fair values as required by FRS39, except as disclosed in note 16.

Cash and cash equivalents, receivables, payables, short-term loans and overdrafts

The carrying amounts of cash and cash equivalents, receivables, payables including related party balances which are expected to be repaid in accordance with normal credit terms, short-term loans and overdrafts, approximate their fair values due to the short-term nature of these balances.

Non-current financial assets/liabilities, including unquoted equity investments

In the opinion of the Directors, the expected cash flows from unquoted equity investments are believed to be in excess of their carrying values. No disclosure of fair value is made for policy loans, mortgaged loans and secured motor vehicle loans, and related party balances including associated, related and subsidiary companies and any other related parties which are in the nature of loans as it is not practicable to determine their fair values with sufficient reliability since these balances have no fixed terms of repayment, although they are not expected to be settled within twelve months from the balance sheet date.





42. FinAnCiAL instRuments (Cont’D)

Fair value (cont’d)

Long-term liabilities (Bonds)

Fair value estimations of these financial instruments are based on relevant market information and information on the instruments at a specific point in time. These estimations are subjective in nature, involving significant judgemental elements and therefore cannot be determined with precision. It is not practical to estimate the fair value of the Group’s long-term financial instruments because of the lack of available market information on instruments of a similar nature and tenor and the inability to estimate fair value without incurring excessive costs.

43. Post bALAnCe sHeet events

(a) Proposed disposal of shares in a subsidiary company

On 1 March 2007, the Company, together with Mr Francis Yuen Tin Fan, entered into a conditional share sale and purchase agreement (the “Agreement”) with Fortis Insurance International N.V. (the “Purchaser”) for the sale of all the ordinary shares of HK$1.00 each in the share capital of the Company’s subsidiary company, PCIH, held by the Company and Mr Francis Yuen Tin Fan to the Purchaser.

As at 1 March 2007, the Company held 383,797,942 PCIH shares, representing approximately 47.06% of the issued share capital of PCIH, and approximately 44.94% of the issued share capital of PCIH on a fully diluted basis (assuming full exercise of all vested and unvested options to acquire PCIH shares granted by PCIH under its share option scheme).

Pursuant to the Agreement, the Purchaser had also agreed to acquire PCIH shares held or beneficially-owned by certain executives of PCIH Group, Clarest Trust and Snowdon International Limited.

As such, the Purchaser had agreed to acquire, in aggregate, 431,110,742 PCIH shares held by the Company, Mr Francis Yuen Tin Fan, the PCIH executives, Clarest Trust, and Snowdon International Limited. This represents approximately 52.86% of the issued share capital of PCIH as at the date of the announcement, and approximately 50.48% on a fully diluted basis.

The aggregate consideration payable by the Purchaser to the Company for all the PCRD sale shares is HK$3,139,467,166 ($620.5 million), being HK$8.18 for each PCRD sale share. The consideration will be wholly satisfied in cash and payable by the Purchaser to the Company on completion. The consideration was arrived at on a willing seller willing buyer basis.





43. Post bALAnCe sHeet events (Cont’D)

(a) Proposed disposal of shares in a subsidiary company (cont’d) The completion of the transaction is subject to, inter alia, the approval of the shareholders of the Company at an

extraordinary general meeting to be convened. Upon completion of the sale of PCIH shares held by the Company, the Company will no longer hold any interest in PCIH, and PCIH will cease to be a subsidiary of the Company.

Following completion, the Purchaser and parties acting in concert with it will own in aggregate 431,110,742 PCIH shares, representing approximately 52.86% of the issued share capital of PCIH as at the date of the announcement and approximately 50.48% of the issued share capital of PCIH on a fully diluted basis.

The Purchaser will then, as required under Rule 26.1 of the Hong Kong Code on Takeovers and Mergers, make an unconditional mandatory offer for all the issued PCIH shares not already owned or agreed to be acquired by it and parties acting in concert with it and to cancel all outstanding PCIH options.

The sale is expected to result in a gain of approximately $360 million for the Group.

(b) Acquisition of investment property at King’s Road

On 13 December 2006, PCIH Group entered into a sale and purchase agreement with an independent third party to acquire certain of its land and buildings in Hong Kong through the acquisition of the entire issued share capital of HKL (King’s Road) Limited and the related shareholder’s loan to HKL (King’s Road) Limited and Foundasia (HK) Limited, at a cash consideration of $291,002,000. HKL (King’s Road) Limited through Foundasia (HK) Limited, owns the properties. This transaction was completed on 9 February 2007 with the remaining balance of $261,902,000 being settled on the same date.

(c) Revision in corporate tax rate

On 15 February 2007, the Minister of Finance of Singapore announced a revision in the Singapore corporate tax rate from 20% to 18% effective from year of assessment 2008. The provision for current and deferred tax in these financial statements has not been revised to reflect this change in the tax rate.

Had the adjustment been made for the revision in corporate tax rate, the provision for current tax for the Group and the Company would be reduced by approximately $7,600 and $6,000 respectively, and the provision for deferred tax for the Group and the Company would be reduced by approximately $470,000.





44. GRouP ComPAnies

Subsidiary and associated companies at 31 December 2006 are:

Subsidiary companies held by the Company Cost of Percentage of equity name of company Principal activities investment held by the Group (country of incorporation) (place of business) 2006 2005 2006 2005 $’000 $’000 % %

PCRD Services Pte Ltd Business management 9 10 100 100 (Singapore) and consultancy services (Singapore) Surrey Investments Investment holding – – 100 100 Pte. Ltd. (Singapore) (Singapore) Seapower Realty Dormant 4,536 4,933 100 100 (Pte) Ltd (Singapore) Gladioli Investments Dormant 114,487 124,494 100 100 Pte Ltd (Singapore) Belmonto Pte Ltd Dormant – – 100 100 (Singapore) Riyan Pte Ltd Property development 907 987 100 100 (Singapore) (Singapore) Hutley Pte Ltd Property investment – – 100 100 (Singapore) (Singapore) Elsmore Pte Ltd Investment holding – – 100 100 (Singapore) (Singapore) Quinliven Pte Ltd Investment holding 995 1,083 75 75 (Singapore) (Singapore) ## PCRD Facilities Dormant – – – 100 Management Pte. Ltd. (Singapore)

+* Pacific Century Regional Investment holding – – 100 100 Developments (HK) Limited (Hong Kong) (Hong Kong)





44. GRouP ComPAnies (Cont’D)

Subsidiary companies held by the Company (cont’d) Cost of Percentage of equity name of company Principal activities investment held by the Group (country of incorporation) (place of business) 2006 2005 2006 2005 $’000 $’000 % %

++ Pacific Century Insurance Investment holding 72,839 79,206 47.1 46.9 Holdings Limited (Hong Kong) (Bermuda)

# Castle Holdings Dormant – 4,849 – 100 (Mauritius) Limited (Mauritius) ^^*## Saddle Investments Investment holding 508 552 100 100 (Mauritius) Limited (Mauritius) (Mauritius) @ Carander Corporation Dormant – – 100 100 (British Virgin Islands) @ Blackwood Investment holding 76 82 100 100 Management Corp. (British Virgin Islands) (British Virgin Islands)

@ Telegraph Investments Dormant – – 100 100 Limited (British Virgin Islands) @ Valuable Enterprises Investment holding 1 1 100 100 Limited (British Virgin Islands) (British Virgin Islands) 194,358 216,197






Associated companies held by the Company

Cost of Percentage of equity name of company Principal activities investment held by the Group (country of incorporation) (place of business) 2006 2005 2006 2005 $’000 $’000 % %

**^ PCCW Limited Provision of local and 956,290 1,039,881 22.6 22.7 (Hong Kong) international telecommunications and information technology services, technology-related businesses, and investment holding (Hong Kong) Anaid Pte Ltd Investment holding 36 39 40 40 (Singapore) (Singapore) * Fort Investments Investment holding 512 557 40 40 (Mauritius) Limited (Mauritius) (Mauritius)

** Orientlead Sdn Bhd Dormant – – 40 40 (Malaysia) 956,838 1,040,477






The following are the principal subsidiary companies held by PCIH at 31 December 2006:

Principal subsidiary companies held by PCIH

Percentage of equity name of company Principal activities held by the Group (country of incorporation) (place of business) 2006 2005 % %

* Bright Victory International Limited Investment holding 47.1 46.9 (British Virgin Islands) (Hong Kong) * Pacific Century Insurance Company Limited Life assurance, administration 47.1 46.9 (Bermuda) of retirement schemes and other related businesses (Hong Kong) * Pacific Century Trustees Limited Provision of trustee services 47.1 46.9 (Hong Kong) (Hong Kong) * PCI Investment Management Limited Asset management 47.1 46.9 (Hong Kong) (Hong Kong) * PCI Capital Limited Note issuance 47.1 46.9 (British Virgin Islands) (Hong Kong) * PCI Wealth Management Limited Investment holding 47.1 – (Hong Kong) (Hong Kong) * Shabhala International Limited Investment holding 47.1 – (British Virgin Islands) (British Virgin Islands) Subsidiary companies held by other subsidiary companies of the Company

Summa Square Pte Ltd Dormant 100 100 (Singapore) * Chancery Saigon Hotel Limited Hotel owner and operator 70 70 (Vietnam) (Vietnam) ** Shanghai Kecheng Parking Carpark development 74.4 74.4 Management Co., Ltd and management

(People’s Republic of China) (People’s Republic of China)





44. GRouP ComPAnies (Cont’D) * Audited by a member firm of Ernst & Young International.

** Audited by other auditors.

@ A company not requiring audit under the laws in its country of incorporation.

+ Percentage of equity held by the Company is 50% and the remaining 50% is held through another wholly-owned subsidiary company.

++ The Company considers PCIH to be a subsidiary company because it continues to control the board of directors of PCIH. PCIH is audited by Ernst & Young (Hong Kong).

^^ Percentage of equity held by the Company is 40% and the remaining 60% is held through another wholly-owned subsidiary company.

# De-registered during the financial year.

## De-registered after the financial year end.

^ PCCW was deconsolidated as a subsidiary company effective 1 January 2003 and reclassified as an associated company. PCCW is audited by PwC (Hong Kong).

45. ReLAteD PARty tRAnsACtions (a) Other significant transactions during the year between the Group and its related parties on terms agreed between the

respective parties, which are not otherwise disclosed in these financial statements, consist of: Group 2006 2005 $’000 $’000 Management services rendered to related companies 134 70 Rental income from related companies 1,281 803 These amounts represent transactions conducted in the ordinary course of business which were charged at rates

agreed in accordance with standard industry practice and on the basis of estimated market value.

(b) Key management compensation

Short-term employee benefits 15,172 8,151 Pension and post-employment medical benefits 270 350 Other long-term benefits 274 796 15,716 9,297

Comprise amounts paid to: – Directors of the Company 1,540 309 – Other key management personnel 14,176 8,988








46. ComPARAtive FiGuRes

Comparatives in the financial statements have been changed from the previous year due to some reclassifications of certain insurance investment assets. The followings have been reclassified to better reflect the nature of the balances and to conform to current year’s classifications:

Group Restated Previous 2005 2005 $’000 $’000

Presented in the balance sheet

non-current assets Long-term financial assets 758,222 162,518 Current assets Short-term investments 667,255 1,262,959 Presented in notes to the Financial statements

note 16: Long-term investments: Quoted bonds, at market value 595,704 – note 20: short-term investments: Quoted bonds, at market value – 595,704

note 23: trade and other receivables:

Insurance business Reinsurance assets 421 –Other receivables 30,058 –

Other receivables Other receivables and prepaid expenses 22,771 47,793Deposits 2,212 7,669

note 30: Future insurance liabilities under investment contracts:

Guaranteed benefits liabilities 1,047,489 1,057,018Provision for dividends 9,529 –

47. AutHoRisAtion oF FinAnCiAL stAtements FoR issue

The financial statements for the year ended 31 December 2006 were authorised for issue in accordance with a resolution passed by the Board of Directors on 30 March 2007.



Pacific Century Regional Developments Limited (“PCRD” or the “Company”) is committed to uphold high standards of corporate governance in conformity with the Code of Corporate Governance 2005 (the “Code”) issued by the Singapore Exchange Securities Trading Limited (“SGX”).

PCRD supports the principles underpinning best practice in corporate governance. The challenge, as PCRD sees it, is not simply to put the various elements of good corporate governance in place but to ensure that these elements are effectively integrated, well understood and applied. Importantly, also, an appropriate balance must be maintained between the conformance and performance roles of the Board and its Committees.

PCRD has always recognised that improving corporate governance is a continuous process and, if implemented effectively, good corporate governance practices provide the integrated strategic framework necessary to achieve the required performance outputs and outcomes, as well as discharging the Company’s accountability obligations.

This report describes PCRD’s corporate governance practices for the year 2006.

boARD oF DiReCtoRs

Principle 1: Board’s Conduct of Affairs

The Board:

1) Acts as the ultimate decision-making body of the Company, except with respect to those matters reserved to shareholders. All directors take decisions objectively in the best interests of the Company.

2) Represents shareholders’ interest in developing the Company’s businesses successfully including optimising long-term financial returns.

3) Reviews and evaluates management performance and ensures that management is capably executing its responsibilities.

4) Acts as an advisor and counselor to senior management.

5) Recognises its legal, social and moral obligations towards other stakeholders.

Specifically, the Board is responsible for:

1) Providing entrepreneurial leadership, formulation of policies and strategies, ensuring that the necessary financial and human resources are in place for the Company to meet its objectives and overseeing the management of the Company as a whole.

2) Approving of major funding, investment and divestment proposals.

3) Overseeing the processes for evaluating the adequacy of internal controls and risk management.

4) Approving the nominations of directors.

5) Assuming responsibility for compliance with the Companies Act and the rules and requirements of regulatory bodies.

Report on Corporate Governance



boARD oF DiReCtoRs (Cont’D)

Matters that are specifically reserved to the full Board for decision are those involving material acquisitions and disposals of assets, corporate or financial restructuring, share issuances, share buy-backs and dividends. Specific Board approval is required for any investment or expenditure exceeding US$50 million (or its equivalent in any other currency) in total. To facilitate effective management, certain functions have been delegated by the Board to Board committees namely, the Executive Committee, the Audit Committee, the Nominating Committee and the Remuneration Committee. For business expediency and administrative efficiency reasons, the role and responsibilities of the Employees’ Share Option Scheme Committee were subsumed under the Remuneration Committee on 21 October 2003.

The Board meets at least four times a year and as warranted by circumstances. The Company’s Articles of Association allow a board meeting to be conducted by way of videoconference, teleconference and other forms of electronic communication. Attendances of directors at meetings of the Board and Board committees during the year were as follows:

name

board Audit nominating Remuneration

no. of meetings

Held

no. of meetings Attended

no. of meetings

Held


no. of meetings

Held


no. of meetings

Held


Richard Li Tzar Kai 6 5 n.a. n.a. n.a. n.a. n.a. n.a.

Francis Yuen Tin Fan 6 5 1* 1* n.a. n.a. n.a. n.a

Peter A. Allen 6 6 5* 5* 1 1 1** 1

Alexander Anthony Arena 6 5 n.a. n.a. 1 0 1** 0

Gordon Seow Li-Ming 6 6 5 5 1 1 1 1

Tom Yee Lat Shing 6 6 5 5 1 1 1 1

Chng Hee Kok 6 4 5 4 1 0 1 0

* By invitation** In compliance with the Code, Messrs. Peter A. Allen and Alexander Anthony Arena resigned as members of the Remuneration Committee as at

1 January 2007.

New directors are briefed on the Group’s business and corporate governance policies. Upon appointment of each new director, PCRD provides a formal letter to the director setting out the director’s duties and obligations. Familiarisation visits are organised, as necessary, to facilitate a better understanding of the Group’s operations. Whilst there are no formal continuing training programmes for existing directors, briefing sessions are conducted when necessary.





Principle 2: Board Composition and Guidance

The Board comprises seven directors of whom four are executive directors and three are independent directors.

The executive directors include the Chairman of the Board, Mr. Richard Li Tzar Kai, Mr. Francis Yuen Tin Fan, Mr. Peter A. Allen and Mr. Alexander Anthony Arena.

The three independent directors are Mr. Chng Hee Kok, Mr. Gordon Seow Li-Ming and Mr. Tom Yee Lat Shing.

The Nominating Committee is responsible for reviewing at least annually the structure, size and composition (including the skills, knowledge, experience and degree of independence) required of the Board compared to its current position and makes recommendations to the Board with regard to any changes.

In reviewing the degree of independence, the Nominating Committee adopted the Code’s definition on what constitutes an independent director.

The profiles of directors are set out on pages 4 to 7 of this Annual Report.

The Board considers its current Board structure, size and composition appropriate for the Group’s present operations. Non-executive directors constructively challenge and help develop proposals on strategy and review the performance of management in meeting agreed goals and objectives and monitor the reporting of performance.

Principle 3: Chairman and Group Managing Director

The Chairman, Mr. Richard Li Tzar Kai, is an executive director and his role is separate from that of Mr. Peter A. Allen who was appointed as Group Managing Director of the Company with effect from 1 November 2006. This is to ensure an appropriate balance of power, increased accountability and greater capacity of the Board for independent decision making. The Chairman is assisted by an Executive Committee comprising Mr. Francis Yuen Tin Fan, Mr. Peter A. Allen, Mr. Alexander Anthony Arena and Mr. Gordon Seow Li-Ming. The Group Managing Director and other executive directors are responsible for the workings of the Board as well as to ensure conformity by management with the corporate governance policies laid down by the Board. The Chairman ensures that board meetings are held when necessary and sets the board meeting agenda in consultation with the executive directors. The Chairman also:

1. leads the Board to ensure its effectiveness on all aspects of its role;

2. ensures that directors receive accurate, timely and clear information;

3. ensures effective communication with shareholders;

4. encourages constructive relations between the Board and management;

5. facilitates the effective contribution of non-executive directors in particular;

6. encourages constructive relations between executive directors and non-executive directors; and

7. promotes high standards of corporate governance.






Members of the Board of directors are drawn from a range of professional disciplines and all directors have prior relevant practical experience. The Board communicates with each member regularly through the Company Secretary to ensure that alternative views are obtained before embarking on transactions, as well as to ensure that there is an adequate information flow.

Principle 6: Access to information

In order to ensure that the Board is able to fulfill its responsibilities, Board members have full co-operation from management and access to the company records and information on an on-going basis. In furtherance of the same, each of the directors has been provided with contact numbers and e-mail addresses of PCRD directors, senior management and the Company Secretary.

Board papers, including sufficient background information, are circulated to Board members prior to meetings by the Company Secretary. Minutes of all Board and Board committee meetings are also circulated to Board members periodically.

The Board has separate and independent access to the Company Secretary and senior management of the Company as and when the need arises.

Should directors, whether as a group or individually, need independent professional advice in relation to the conduct of his or their duties, the Company Secretary will, upon direction by the Board, appoint a professional advisor selected by the individual or individuals concerned and approved by the executive directors to render advice. The cost of such professional advice is borne by the Company.

The Company Secretary attends all Board meetings and is responsible for ensuring that Board procedures are followed. It is the Company Secretary’s responsibility to ensure that the Company complies with the requirements of the Companies Act and all other rules and regulations which are applicable to the Company and that Board members are fully briefed on these and have regard to them when taking decisions. The Company Secretary’s responsibilities also include ensuring good information flows within the Board and its Board committees and between senior management and non-executive directors, as well as facilitating orientation and assisting with professional development as required.

The appointment and the removal of the Company Secretary is a matter for the Board as a whole.

boARD Committees

Board committees do not have direct oversight over the affairs of PCCW Limited (“PCCW”) and Pacific Century Insurance Holdings Limited (“PCIH”) as these companies are listed in Hong Kong and the Board and Board committees of the Company rely on the respective Boards and Board committees of PCCW and PCIH to oversee their own operations.

nominAtinG Committee

Principle 4: Board Membership

Principle 5: Board Performance

The Nominating Committee was formed on 5 December 2002.

The Nominating Committee comprises three independent directors namely, Mr. Gordon Seow Li-Ming (Chairman), Mr. Tom Yee Lat Shing and Mr. Chng Hee Kok and two executive directors namely, Mr. Peter A. Allen and Mr. Alexander Anthony Arena.



nominAtinG Committee (Cont’D)

The duties and responsibilities of the Nominating Committee are as follows:

1. To assess the skills represented on the Board by the directors and determine whether those skills meet the required standard to competently discharge the Board’s duties, having regard to the strategic direction of the Company and to make recommendations to the Board on candidates it considers appropriate for appointment or re-appointment.

2. To implement a process for identification of suitable candidates for appointment to the Board and assess the independence of the appointees in accordance with the guidelines contained in the Code.

3. To evaluate and assess the effectiveness of the Board as a whole by establishing a process for conducting reviews of all Board members by such means as it considers appropriate.

New directors and retiring directors seeking re-election are recommended to the Board, after the Nominating Committee has agreed to their nomination. Article 104 of the Company’s Articles of Association provides that one-third of the Board of Directors is to retire from office by rotation and is subject to re-election at the Company’s Annual General Meeting (“AGM”) and every director is to submit himself for re-election at least once every 3 years. In addition, Article 108 of the Company’s Articles of Association provides that a newly appointed director must retire and submit himself for re-election at the next AGM following his appointment.

The date of appointment and last re-election of each director, together with their directorships or chairmanships both present and those held over the preceding three years in other listed companies are set out below:

name of DirectorPCRD

directorshipDate of initial appointment

Date of lastre-election /

re-appointment

Directorships or chairmanshipsboth present and those held overthe preceding three years in other

listed companies

Richard Li Tzar Kai Executive 08.09.94 26.04.05 – PCCW Limited– Pacific Century Premium

Developments Limited– The Bank of East Asia, Limited

Francis Yuen Tin Fan Executive 15.03.05 26.04.05 – PCCW Limited– Pacific Century Premium

Developments Limited– Pacific Century Insurance Holdings

Limited– COFCO International Limited– Hanny Holdings Limited– Kee Shing (Holdings) Limited– Techpacific Capital Limited

Peter A. Allen Executive 01.11.97 28.04.06 – PCCW Limited– Pacific Century Insurance Holdings

Limited– Jaleco Limited






name of Director AppointmentDate of initial appointment

Date of lastre-election /

re-appointment

Directorships or chairmanshipsboth present and those held overthe preceding three years in other

listed companies

Alexander Anthony Arena Executive 05.11.99 28.04.06 – PCCW Limited– Pacific Century Premium

Developments Limited– Pacific Century Insurance Holdings

Limited– SUNDAY Communications Limited

Gordon Seow Li-Ming Non Executive / Independent

08.09.94 28.04.06 – Hotel Properties Limited– Kim Eng Holdings Ltd– Adroit Innovations Ltd– Zindart Ltd

Tom Yee Lat Shing Non Executive / Independent

19.04.91 28.04.06 – General Magnetics Ltd– Bonvests Holdings Limited– Powermatic Data Systems Limited– Cosco Corporation (S) Ltd– Pokka Corporation (Singapore) Limited– Eagle Brand Holdings Limited

Chng Hee Kok Non Executive / Independent

21.10.88 28.04.06 – Auston International Group Ltd– Brilliant Manufacturing Ltd– CHT (Holdings) Ltd– Joinn Holdings Ltd – Dreamgate Corporation Berhad– Full Apex (Holdings) Ltd– Luxking Group Holdings Ltd– Lung Kee Metal Holdings Ltd– People’s Food Holdings Ltd– Samudera Shipping Line Ltd– Sunray Holdings Ltd

Key information regarding directors, including academic and professional qualifications, are set out on pages 4 to 7 of this Annual Report.

The process for the selection and appointment of new directors to the Board is done when necessary by the Nominating Committee. The Nominating Committee implements a process to search and identify suitable candidates for nomination to the Board for appointment.

The Nominating Committee evaluated the Board’s performance as a whole for 2006 based on performance criteria which includes an evaluation of the size and composition of the Board, the Board’s access to information, Board performance in relation to discharging its principal functions, fiduciary duties and communication with senior management. These performance criteria do not include the financial indicators set out in the Code as guides for the evaluation of directors, as the Board is of the view that these indicators are not meaningful measures of its performance given that PCRD’s principal assets are its controlling stake in PCIH and its holding in PCCW. Although these two assets comprise the inherent values of PCRD, they are managed on a day-to-day basis by the respective Boards and professional management of PCIH and PCCW.




In the assessment of the contribution by each individual director to the effectiveness of the Board, the Nominating Committee takes into consideration their respective preparedness, commitment, participation, attendance at Board and Board committee meetings and whether they have the essential skills to competently discharge the Board’s duties. The Chairman acts on the results of the performance evaluation by the Nominating Committee, and where appropriate, proposes new members to be appointed to the Board or seeks the resignation of directors, in consultation with the Nominating Committee.

AuDit Committee

Principle 11: Audit Committee

Principle 12: Internal Controls

Principle 13: Internal Audit

The Audit Committee was formed on 19 April 1991. The Audit Committee comprises three non-executive and independent directors namely, Mr. Tom Yee Lat Shing (Chairman), Mr. Gordon Seow Li-Ming and Mr. Chng Hee Kok. The Board is satisfied that members of the Audit Committee are appropriately qualified to discharge their responsibilities.

The Audit Committee performs the following main functions:

1. Review the independence of external auditors and recommend to the Board of Directors whether the external auditors be re-appointed.

2. Review with management, upon finalisation and prior to publication, the financial results for each quarter, half-year and full year.

3. Review interested person transactions and the adequacy of PCRD’s internal control procedures in relation to interested person transactions.

4. Review compliance with accounting standards, all relevant laws, the Listing Rules of the SGX and the Code.

5. Review any changes during the year in accounting principles or their application.

6. Review significant adjustments proposed by the external auditors.

7. Review the audit plans of the external auditors of the Company and ensure the adequacy of the system of accounting controls and the co-operation given by management.

8. Review with PCRD’s management the adequacy of the Company’s internal controls in respect of management and business practices and review with management and external auditors significant accounting and auditing issues.

9. Report to the Board or relevant authorities any suspected fraud or irregularity, or failure of internal controls or suspected infringement of any relevant Singapore law or other regulation, which has or is likely to have a material impact on PCRD’s operating results.

In the performance of its functions, the Audit Committee reviews the findings of the auditors and the assistance given to them by management. The Audit Committee is empowered to investigate any activity of PCRD, and all employees must cooperate as requested by members of the Audit Committee.





AuDit Committee (Cont’D)

The Audit Committee reviews arrangements by which staff of the Company may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters such that arrangements will be in place for the independent investigation of such matters and for appropriate follow up action.

The Audit Committee meets at least four times a year. The Audit Committee may invite any executive management team member to attend meetings, as they consider appropriate. The Audit Committee meets with the external auditors, without the presence of the Company’s management, at least once a year.

Ernst & Young carry out, in the course of their statutory audit, a review of the effectiveness of the Company’s material internal controls with the aim of ensuring that these are adequate for financial statement attestation purposes. Any material non-compliance noted during this review is reported to the Audit Committee together with the auditors’ recommendations and management’s comments.

For the financial statements under review, the Audit Committee has reviewed the scope and results of the audit, and the independence and objectivity of the external auditors and confirmed that Ernst & Young are independent certified public accountants with respect to the Company within the meaning of Section 10 of the Singapore Companies Act.

The Audit Committee has reviewed the Group’s risk assessment and, based on the auditors’ reports and management controls in place throughout the Group, is satisfied that there are adequate internal controls, including financial, operational and compliance controls, and risk management systems in the Group.

The Audit Committee has reviewed all non-audit services provided by its auditors, Ernst & Young. The Audit Committee is of the opinion that such non-audit services provided by Ernst & Young would not affect the independence of the auditors.

The Group’s listed subsidiary company, PCIH, and its listed associated company, PCCW, have their own internal audit functions. The Audit Committee has the mandate to authorise special reviews or investigations, where appropriate, in discharging its responsibilities.

RemuneRAtion Committee

Principle 7: Procedures for Developing Remuneration Policies

Principle 8: Level and Mix of Remuneration

Principle 9: Disclosure on Remuneration

The Remuneration Committee was formed on 5 December 2002.

The Remuneration Committee is presently comprised entirely of non-executive independent directors. They are Mr. Chng Hee Kok (Chairman), Mr. Tom Yee Lat Shing and Mr. Gordon Seow Li-Ming. The Remuneration Committee has access to expert advice from both inside and outside the Company where required.

The Remuneration Committee does not oversee the executive remuneration policy of PCIH as it is listed on The Stock Exchange of Hong Kong Limited and has its own mechanisms and approval processes which meet local regulatory standards.



RemuneRAtion Committee (Cont’D)

The Remuneration Committee’s principal responsibilities are as follows:

1. Recommend to the Board a framework of remuneration for the Board which covers all aspects of remuneration, including but not limited to directors’ fees, salaries, allowances, bonuses, options and benefits in kind. The Remuneration Committee also reviews the remuneration of senior management.

2. Review the on-going appropriateness and relevance of the directors’ remuneration policy.

3. Review and approve the design of all equity-based plans. Administer and implement the Pacific Century Regional Developments Employees’ Share Option Scheme (“ESOS Scheme”) with such powers and duties as are conferred on it by the Board in accordance with the Restated Rules of the ESOS Scheme.

4. Oversee the implementation of remuneration policies within PCRD and ensure that no director participates in decisions on his/her own remuneration.

Executive directors do not receive directors’ fees. In most cases, executive directors are remunerated by PCCW.

For confidentiality and competitive reasons, the Company discloses the remuneration bands as follows:

Directors’ Remuneration

For financial years ended 31 December 2006 and 31 December 2005, the number of directors in each remuneration band is as follows: 2006 2005

$500,000 and above – –$250,000 to $499,999 1 1Below $250,000 6 8Total 7 9

The above table includes all directors who held office in 2005 and 2006.

Non-executive directors are paid a basic fee and additional fees for attendance at meetings. The Board recommends the payment of such fees for approval by shareholders as a single sum at the AGM of the Company.

The Remuneration Committee administers the ESOS Scheme. Executive directors and non-executive directors are eligible to be granted share options under the ESOS Scheme. The objectives of the ESOS Scheme are to motivate executives and employees of the Group, to optimise their performance standards and efficiency and to retain key executives whose contributions are important to the long-term growth and profitability of the Group.




RemuneRAtion Committee (Cont’D)

In granting options to executives, the Remuneration Committee takes into account criteria such as the individual’s rank, performance, years of service and potential for future development.

No share options were granted in 2005 or 2006.

Other details of the ESOS Scheme are found in the Directors’ Report.

PCRD is an investment holding company and is the holding company of Hong Kong-listed, PCIH. The primary executive functions in PCRD itself are performed by executive directors who undertake responsibility for the day-to-day operations of both the Company and the Group. The details of directors’ remuneration are disclosed above. Key information regarding executive directors is disclosed on pages 4 to 7 of this Annual Report. In view of the limited number of Company’s staff, disclosure of the remuneration of the top five executives (executives who are not directors) is considered not relevant.

CommuniCAtions witH sHAReHoLDeRs

Principle 10: Accountability

Principle 14: Communications with Shareholders

Principle 15: Greater Shareholder Participation

The Company does not practise selective disclosure. Price sensitive announcements including financial results and relevant announcements from PCIH and PCCW, which are listed on The Stock Exchange of Hong Kong Limited, are released through SGXNET.

In its communications on the Company’s performance, it is the Board’s aim to provide shareholders with a balanced and understandable assessment of the Company's performance, position and prospects on a quarterly basis using timely information provided by management and reviewed by the Board.

In relation to communications with shareholders at general meetings of the Company, notices of meetings and related explanatory information are drafted to provide all information that is relevant to shareholders on matters to be voted on at the meetings. It is the primary objective of the Company to ensure that such information is presented clearly and concisely so that it is easy to understand and unambiguous.

At general meetings, shareholders are encouraged to participate and are allowed a reasonable opportunity to ask the Board of Directors questions regarding the Company and its subsidiaries and to participate in the meeting itself. The Articles of Association of the Company further allow a member of the Company to appoint one or two proxies to attend and vote instead of the member.

The Chairmen of the Audit, Nomination and Remuneration Committees are normally present to address questions at general meetings. In particular, the external auditor of the Company is present at the AGM of the Company to answer shareholders’ questions about the conduct of the audit and the preparation and content of the auditors’ report.




inteResteD PeRson tRAnsACtions (“iPts” )

The Company has adopted an internal policy in respect of any transactions with interested persons and has established procedures for review and approval of the Company’s interested person transactions. The external auditors and the Audit Committee review all such transactions to confirm that the guidelines and procedures established to monitor IPTs have been complied with.

DeALinGs in seCuRities

The Group has adopted an internal code in conformity with the provisions of the Best Practices Guide in the SGX Listing Manual. This code provides guidance to directors and certain employees in relation to dealings in the Company’s shares. Directors and certain employees of the Group who have access to price-sensitive and confidential information are not permitted to deal in the Company’s shares when they are in possession of unpublished price-sensitive information on the Group or during periods commencing fourteen days before the announcement of the Group’s quarterly financial results and ending on the date of announcement of such results. In the event that the dates of announcement of the respective financial results of PCCW and PCIH should fall more than seven days before the date of announcement of the Company’s financial results for that quarter, all directors and certain employees of the Group are not permitted to deal in the Company’s shares during the periods commencing seven days before the announcement of either PCCW’s or PCIH’s financial results, whichever is earlier, and ending on the date of announcement of the Company’s results.




issueD AnD FuLLy PAiD-uP:

S$457,282,365.61 divided into 3,096,269,100 ordinary shares.

Class of Shares – Ordinary shareVoting Rights – One vote per share

DistRibution oF sHAReHoLDinGs

no. of % of no. of % ofsize of shareholdings shareholders shareholders shares shares1 – 999 56 0.82 10,922 0.00 1,000 – 10,000 4,167 60.88 26,205,952 0.8510,001 – 1,000,000 2,581 37.71 127,071,740 4.101,000,001 and above 41 0.60 2,942,980,486 95.05Total 6,845 100.00 3,096,269,100 100.00

Approximately 23.60% of the issued ordinary shares are held by the public. Rule 723 of the Listing Manual of the Singapore Exchange Securities Trading Limited has accordingly been complied with.

substAntiAL sHAReHoLDeRs

(including deemed interest as recorded in the Register of Substantial Shareholders as at 16 March 2007)

Direct interest Deemed interest no. of issued no. of issued shares shares

Jason Fedder 1 – 2,332,300,230Jenny W.L. Fung 1 – 2,332,300,230Lester Huang 1 – 2,332,300,230OS Holdings Limited 1 – 2,332,300,230Ocean Star Management Limited 1 – 2,332,300,230The Ocean Trust 1 – 2,332,300,230The Ocean Unit Trust 1 – 2,332,300,230The Starlite Trust 1 – 2,332,300,230The Starlite Unit Trust 1 – 2,332,300,230Pacific Century Group Holdings Limited 2 – 2,332,300,230Pacific Century International Limited 3 – 2,330,058,230Pacific Century Group (Cayman Islands) Limited 4 1,160,991,050 1,169,067,180Anglang Investments Limited 1,169,067,180 –

shareholding statisticsAs at 16 March 2007



shareholding statisticsAs at 16 March 2007

Notes:

1 In April 2004, Mr. Richard Li Tzar Kai transferred his entire beneficial interest in Pacific Century Group Holdings Limited to Ocean Star Management Limited as trustee holding for and on behalf of The Ocean Unit Trust and The Starlite Unit Trust. All the issued units of each of The Ocean Unit Trust and The Starlite Unit Trust are held by Star Ocean Ultimate Limited as trustee for and on behalf of The Ocean Trust and The Starlite Trust respectively. Ocean Star Management Limited is the wholly-owned subsidiary of OS Holdings Limited. Mr. Jason Fedder, Ms. Jenny W.L. Fung and Mr. Lester Huang each holds more than 20% of the shares of OS Holdings Limited. Each of The Ocean Trust, The Starlite Trust, The Ocean Unit Trust, The Starlite Unit Trust, Mr. Jason Fedder, Ms. Jenny W. L. Fung, Mr. Lester Huang, OS Holdings Limited and Ocean Star Management Limited is deemed to have an interest in 2,332,300,230 shares in the Company through Pacific Century Group Holdings Limited (see note 2).

2 Pacific Century Group Holdings Limited (“PCGH”) through its wholly-owned subsidiary company, Borsington Limited (“Borsington”), holds 2,242,000 shares of the Company. By virtue of Section 7 of the Companies Act, Cap. 50, PCGH is deemed to be interested in (i) the 2,242,000 shares held by Borsington, (ii) the 1,169,067,180 shares held by Anglang Investments Limited and (iii) the 1,160,991,050 shares held by Pacific Century Group (Cayman Islands) Limited.

3 By virtue of Section 7 of the Companies Act, Cap. 50, Pacific Century International Limited is deemed to be interested in (i) the 1,169,067,180 shares held by Anglang Investments Limited and (ii) the 1,160,991,050 shares held by Pacific Century Group (Cayman Islands) Limited.

4 By virtue of Section 7 of the Companies Act, Cap. 50, Pacific Century Group (Cayman Islands) Limited is deemed to be interested in the 1,169,067,180 shares held by Anglang Investments Limited.

twenty LARGest sHAReHoLDeRs As At 16 mARCH 2007

no. name no. of shares %

1 Anglang Investments Limited 1,169,067,180 37.762 Pacific Century Group (Cayman Islands) Limited 1,160,991,050 37.503 OCBC Securities Private Ltd 149,412,000 4.834 Citibank Nominees Singapore Pte Ltd 99,143,422 3.205 Raffles Nominees Pte Ltd 91,255,100 2.956 HSBC (Singapore) Nominees Pte Ltd 60,345,766 1.957 UOB Kay Hian Pte Ltd 44,765,000 1.458 DBS Vickers Securities (S) Pte Ltd 44,607,000 1.449 DBS Nominees Pte Ltd 23,755,497 0.7710 DBSN Services Pte Ltd 11,282,467 0.3611 United Overseas Bank Nominees Pte Ltd 7,943,208 0.2612 Oei Hong Leong Foundation Pte Ltd 7,715,000 0.2513 PSC Corporation Ltd 7,100,000 0.2314 Capital Intelligence Limited 6,953,000 0.2215 Peter A. Allen 5,000,000 0.1616 Intraco Limited 4,700,000 0.1517 Kim Eng Securities Pte. Ltd. 4,348,650 0.1418 Tan Ling San 3,400,000 0.1119 OCBC Nominees Singapore Pte Ltd 3,220,000 0.1020 Phillip Securities Pte Ltd 3,211,500 0.10 Total 2,908,215,840 93.93



NOTICE IS HEREBY GIVEN that the 43rd Annual General Meeting of the Company will be held at Raffles Town Club, Dunearn Room III, Level 1, 1 Plymouth Avenue, Singapore 297753 on Monday, 30 April 2007 at 3.30 p.m. for the following purposes:

As oRDinARy business

1. To receive and adopt the Directors’ Report and Audited Accounts of the Company for the year ended 31 December 2006 and the Auditors’ Report thereon.

2. To re-elect the following Directors retiring pursuant to Article 104 of the Articles of Association of the Company and who, being eligible, offer themselves for re-election:

(a) Mr. Richard Li Tzar Kai(b) Mr. Francis Yuen Tin Fan(c) Mr. Chng Hee Kok

Mr. Chng Hee Kok, upon re-election as a Director of the Company, will be considered as an Independent Director and will remain as Chairman of the Remuneration Committee and member of the Audit and Nominating Committees.

3. To consider and, if thought fit, to pass the following resolution:

“THAT pursuant to Section 153(6) of the Companies Act, Cap. 50, Messrs. Gordon Seow Li-Ming and Tom Yee Lat Shing be and are hereby re-appointed as Directors of the Company to hold such office until the conclusion of the next Annual General Meeting of the Company.”

Subject to his re-appointment, Mr. Gordon Seow Li-Ming, who is an Independent Director, will remain as Chairman of the Nominating Committee and a member of the Executive, Audit and Remuneration Committees.

Subject to his re-appointment, Mr. Tom Yee Lat Shing, who is an Independent Director, will remain as Chairman of the Audit Committee and a member of the Nominating and Remuneration Committees.

4. To approve Directors’ fees of $128,000 for the year ended 31 December 2006 (2005: $127,000).

5. To appoint PricewaterhouseCoopers as Auditors of the Company and to authorise the Directors to fix their remuneration.

notice of 43rd Annual General meetingPACIFIC CENTuRy REGIONAL DEvELOPMENTS LIMITED(Incorporated in the Republic of Singapore)Company Registration No. 196300381N



As sPeCiAL business

6. That authority be and is hereby given to the Directors of the Company to:

(a) (i) issue shares in the capital of the Company (“shares”) whether by way of rights, bonus or otherwise; and/or

(ii) make or grant offers, agreements or options (collectively, “instruments”) that might or would require shares to be issued, including but not limited to the creation and issue of (as well as adjustments to) warrants, debentures or other instruments convertible into shares,

at any time and upon such terms and conditions and for such purposes and to such persons as the Directors may in their absolute discretion deem fit; and

(b) (notwithstanding the authority conferred by this Resolution may have ceased to be in force) issue shares in pursuance of any Instrument made or granted by the Directors while this Resolution was in force,

provided that:

(1) the aggregate number of shares to be issued pursuant to this Resolution (including shares to be issued in pursuance of Instruments made or granted pursuant to this Resolution) does not exceed 50 per cent of the issued shares in the capital of the Company (as calculated in accordance with paragraph (2) below), of which the aggregate number of shares to be issued other than on a pro rata basis to shareholders of the Company (including shares to be issued in pursuance of Instruments made or granted pursuant to this Resolution) does not exceed 20 per cent of the issued shares in the capital of the Company (as calculated in accordance with paragraph (2) below);

(2) (subject to such manner of calculation and adjustment as may be prescribed by the Singapore Exchange Securities Trading Limited (“sGx-st”)) for the purpose of determining the aggregate number of shares that may be issued under paragraph (1) above, the percentage of issued shares shall be based on the number of issued shares in the capital of the Company at the time this Resolution is passed, after adjusting for:

(i) new shares arising from the conversion or exercise of any convertible securities or share options which are outstanding or subsisting at the time this Resolution is passed; and

(ii) any subsequent consolidation or subdivision of shares;

(3) in exercising the authority conferred by this Resolution, the Company shall comply with the provisions of the Listing Manual of the SGX-ST for the time being in force (unless such compliance has been waived by the SGX-ST) and the Articles of Association for the time being of the Company; and

(4) (unless revoked or varied by the Company in general meeting) the authority conferred by this Resolution shall continue in force until the conclusion of the next Annual General Meeting of the Company or the date by which the next Annual General Meeting of the Company is required by law to be held, whichever is the earlier.

notice of 43rd Annual General meeting



As sPeCiAL business (Cont’D)

7. To transact such other business as can be transacted at an Annual General Meeting of the Company.

By Order of the Board

Lim Beng JinCompany Secretary

Singapore12 April 2007




stAtement PuRsuAnt to ARtiCLe 64 oF tHe ComPAny’s ARtiCLes oF AssoCiAtion

Ordinary Resolution 6 is to empower the Directors to issue shares in the capital of the Company and to make or grant instruments (such as warrants or debentures) convertible into shares, and to issue shares in pursuance of such instruments, up to a number not exceeding in total 50 per cent of the issued shares in the capital of the Company, with a sub-limit of 20 per cent for issues other than on a pro rata basis to shareholders. For the purpose of determining the aggregate number of shares that may be issued, the percentage of issued shares shall be based on the number of issued shares in the capital of the Company at the time that Resolution 6 is passed, after adjusting for (a) new shares arising from the conversion or exercise of any convertible securities or share options which are outstanding or subsisting at the time that Resolution 6 is passed, and (b) any subsequent consolidation or subdivision of shares.

Notes:

1. A member of the Company entitled to attend and vote at the Annual General Meeting is entitled to appoint not more than two proxies to attend and vote in his stead.

2. A member of the Company which is a corporation is entitled to appoint its authorised representative or proxy to vote on its behalf.

3. A proxy need not be a member of the Company.

4. The instrument appointing a proxy must be deposited at the registered office of the Company at 6 Battery Road, #38-02, Singapore 049909, not less than 48 hours before the time appointed for holding of the Annual General Meeting.




This page has been left blank intentionally.


134 Pacific Century Regional Developments Limited Annual Report 2006134 Pacific Century Regional Developments Limited Annual Report 2006

Notes:

1. Please insert the total number of shares held by you. If you have shares entered against your name in the Depository Register (as defined in Section 130A of the Companies Act, Cap. 50 of Singapore), you should insert that number of shares. If you have shares registered in your name in the Register of Members, you should insert that number of shares. If you have shares entered against your name in the Depository Register and shares registered in your name in the Register of Members, you should insert the aggregate number of shares entered against your name in the Depository Register and registered in your name in the Register of Members. If no number is inserted, the instrument appointing a proxy or proxies shall be deemed to relate to all the shares held by you.

2. A member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint one or two proxies to attend and vote instead of him. A proxy need not be a member of the Company.

3. If the Chairman of the Meeting is appointed as proxy, the instrument appointing a proxy or proxies shall be deemed to confer on him the right to nominate a person to vote on his behalf on a show of hands.

4. Where a member appoints two proxies, the appointments shall be invalid unless he specifies the proportion of his shareholding (expressed as a percentage of the whole) to be represented by each proxy.

5. The instrument appointing a proxy or proxies must be deposited at the Registered Office of the Company at 6 Battery Road, #38-02, Singapore 049909, not less than 48 hours before the time appointed for holding of the Annual General Meeting.

6. The instrument appointing a proxy or proxies, must be under the hand of the appointor or of his attorney duly authorised in writing. Where the instrument appointing a proxy or proxies is executed by a corporation, it must be executed either under its seal or under the hand of an officer or attorney duly authorised.

7. A corporation which is a member may authorise by resolution of its directors or other governing body such person as it thinks fit to act as its representative at the Annual General Meeting in accordance with Section 179 of the Companies Act, Cap. 50 of Singapore.

8. The Company shall be entitled to reject the instrument appointing a proxy or proxies if it is incomplete, improperly completed or illegible or where the true intentions of the appointor are not ascertainable from the instructions of the appointor specified in the instrument appointing a proxy or proxies. In addition, in the case of shares entered in the Depository Register, the Company may reject any instrument appointing a proxy or proxies lodged if the member, being the appointor, is not shown to have shares entered against his name in the Depository Register as at 48 hours before the time appointed for holding the Annual General Meeting, as certified by The Central Depository (Pte) Limited to the Company.

notes to the Proxy Form


Proxy FormPACIFIC CENTuRy REGIONAL DEvELOPMENTS LIMITED(Incorporated in the Republic of Singapore)Company Registration No. 196300381N

I/We, _______________________________________________________________________________________________________ (Name)

of ________________________________________________________________________________________________________ (Address)

being a member/members of Pacific Century Regional Developments Limited hereby appoint:

name Address nRiC/Passport numberProportion of

shareholdings (%)

and/or (delete as appropriate)

as my/our proxy/proxies to attend and to vote for me/us on my/our behalf and, if necessary, to demand a poll at the Annual General Meeting of the Company, to be held at Raffles Town Club, Dunearn Room III, Level 1, 1 Plymouth Avenue, Singapore 297753 on Monday, 30 April 2007 at 3.30 p.m. and at any adjournment thereof.

(Please indicate with an “X” in the spaces provided whether you wish your vote(s) to be cast for or against the Ordinary Resolutions as set out in the Notice of Annual General Meeting. In the absence of specific directions, the proxy/proxies will vote or abstain as he/they may think fit as he/they will on any other matter arising at the Annual General Meeting.)

no. ordinary business-ordinary Resolution For Against

1. To adopt the Directors’ Report, Audited Accounts and Auditors’ Report

2.

To re-elect the following Directors:

(a) Mr. Richard Li Tzar Kai

(b) Mr. Francis Yuen Tin Fan

(c) Mr. Chng Hee Kok

3.

To re-appoint the following Directors:

(a) Mr. Gordon Seow Li-Ming

(b) Mr. Tom Yee Lat Shing

4. To approve Directors’ fees for the year ended 31 December 2006

5. To appoint PricewaterhouseCoopers as Auditors and to authorise the Directors to fix their remuneration

special business-ordinary Resolution

6.To authorise the Directors to issue shares pursuant to Section 161 of the Companies Act, Cap. 50

7. To transact any other business

Dated this __________________________________ day of April 2007

total number of shares Held

Signature of Shareholder(s) or Common Seal imPoRtAnt: PLeAse ReAD notes on PAGe 134


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the Company secretary

Pacific Century Regional Developments Limited

6 Battery Road #38-02Singapore 049909

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Pacific Century Regional Developments Limited (PCRD), a Singapore-based company listed on the Singapore

Exchange Securities Trading Limited, has interests in financial services, telecommunications and information

technology and property and infrastructure investment and development, throughout the Asia-Pacific region.

PCRD’s main subsidiary is Hong Kong-listed Pacific Century Insurance Holdings Limited (PCIH) (SEHK: 0065).

PCRD’s most significant investment is in Hong Kong-listed associated company, PCCW Limited (PCCW)

(SEHK: 0008; NYSE: PCW), a constituent of the Hang Seng Index and the MSCI Hong Kong Index. PCRD is

75.3% owned by the Pacific Century Group, which was founded in 1993. The Pacific Century Group acquired

control of PCRD in September 1994.

Corporate Profile


Pacific Century Regional Developments LimitedAnnual Report 2006

C r e a t i n g V a l u eF i n a n c i a l S e r v i c e s l

C o m m u n i c a t i o n s S e r v i c e s l

P ro p e r t y & I n f r a s t r u c t u re l

Pacific Century Regional Developments LimitedCompany Registration No. 196300381N

6 Battery Road #38-02 Singapore 049909Tel 65 6438 2366 Fax 65 6230 8777Email [email protected]

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