because of the highly specialized nature of investing in equities, most sovereign funds outsource part of the management of their resources to specialized external managers. these external managers are given specific mandates, with specific targets or benchmarks and their fees are tied to returns in excess of the benchmark. i should note that since the hsf act has been approved, much has been achieved : • as you may know, the hsf board has been appointed. • the board has approved the strategic asset allocation. • the central bank is in the process of selecting the external managers, a process that we expect to complete in the next few months. • the first audited annual report of the hsf has been prepared and has been submitted to parliament ; the central bank has also prepared quarterly reports that are sent to the hsf board. • pending the appointment of the external managers, the hsf board has approved a transitional investment plan that ’ s currently being implemented by the central bank. • for the record, the current fund balance is us $ 1. 996 million. from 2002 to the present, the fund has increased by us $ 1, 500 million, roughly us $ 250 million a year. this represents about 12 per cent of average annual energy tax collections. ( i note, that this is the figure even though the government has always deposited more than required by the formula. ) • at the current rate of deposit, and assuming no withdrawals and a real rate of return of 4 per cent, the total fund balance would rise to a mere us $ 11. 3 billion in the next fifteen ( 15 ) years. • one can argue that a more robust accumulation will be necessary to fulfill the fund ’ s original objective over the long term. " back of the envelope " calculations suggest that it will take an average annual deposit of about us $ 800 million, ( or about 20 per cent of projected annual energy tax collections ) to reach a balance of around us $ 25 billion by 2023 ( i. e. after 15 years ). of course the increase in savings has as its counterpart, expenditure curtailment. is there a role for the population in the administration of the hsf? the answer is without doubt yes. without doubt, public understanding of the importance of the hsf and public buy - in to the programme are critical to the success of the hsf. and the hsf board intends to adopt an active communications strategy. for example, the public should be convinced of the

hsf act approved by parliament in march of last year, is therefore a most important piece of legislation. in line with international best practices, the legislation provides for clear deposit and withdrawal rules ; a governance structure that seeks to incorporate checks and balances and provisions to ensure the highest level of transparency and accountability in the management of the country ’ s money. broadly speaking : • the deposit rule requires that a minimum of 60 per cent of the excess between actual and budgeted energy revenues must be credited to the fund, while ; • the withdrawal rule allows the government to tap into the fund to cover 60 per cent of any revenue shortfalls. there is a cap on the amount of the fund that could be used for stabilization. there are some other significant provisions in the law or in the principles underlying the fund. thus, for example : • hsf deposits are to be invested abroad, with a medium to long term focus ; • in principle, the fund should be invested in assets not directly related to oil and gas ( so as to avoid contagion ) ; • the fund cannot be used to directly finance capital expenditure or as collateral for government borrowing ; • the act comes up for review every five years ; and • as i said before, the fund should be characterized by the highest level of transparency of objectives and results, and clear accountability and professionalism in its management. the legislation clearly outlines the roles for the major players – minister of finance, the board of the hsf, the central bank, and the parliament, which represents the people, as the ultimate authority. the minister of finance is responsible for approving the deposits and withdrawal from the fund ( according to the formula ). the hsf board decides on the investment objectives of the fund and approves the strategic asset allocation – which in effect is the definition of the overall risk - return profile of the portfolio. in the final analysis, the board is answerable for the overall performance of the fund but it delegates this function to the central bank, which is given responsibility for the day to day management of the fund. to fulfill its function, the bank will make extensive use of external fund managers which it will help to select and oversee. the bank is also available to give technical advice to the board as required. the parliament, as representative of the people has the ultimate oversight role of the fund, exercised through review of the annual reports and the audited financial statements. the norwegian petroleum fund is recognized as the benchmark for transparency and disclosure of