Hong Kong Baptist University 1998 Superannuation Fund Investment review HSBC Investments (Hong Kong) Limited Level 22, HSBC Main Building, 1 Queen’s Road Central, Hong Kong Telephone: +852 2284 1111 Facsimile: +852 2845 0226 Web site: www.hsbcinvestments.com.hk March 2006

Agenda Market performance Investment choice Fund performance Peers review Asset allocation Investment strategy Factors for consideration before switching

Market performance

Market statistics: 3 months to December 2005 (in HKD terms) Currencies Bonds * Equities ** * Bonds: Citigroup World Government Bond Indices, HSBC HKD Bond Index (Overall) ** Equities: USA (S&P 500), UK (FTSE-100), Germany (DAX), Japan (Nikkei 225), Hong Kong (HSI), Australia (All Ordinaries), Taiwan (WPI), Korea (KOSPI) Source: Thomson Financial Datastream, Bloomberg

Market statistics: 1 year to December 2005 (in HKD terms) Currencies Bonds * Equities ** * Bonds: Citigroup World Government Bond Indices, HSBC HKD Bond Index (Overall) ** Equities: USA (S&P 500), UK (FTSE-100), Germany (DAX), Japan (Nikkei 225), Hong Kong (HSI), Australia (All Ordinaries), Taiwan (WPI), Korea (KOSPI) Source: Thomson Financial Datastream, Bloomberg

Market statistics: 3 months to January 2006 (in HKD terms) Currencies Bonds * Equities ** * Bonds: Citigroup World Government Bond Indices, HSBC HKD Bond Index (Overall) ** Equities: USA (S&P 500), UK (FTSE-100), Germany (DAX), Japan (Nikkei 225), Hong Kong (HSI), Australia (All Ordinaries), Taiwan (WPI), Korea (KOSPI) Source: Thomson Financial Datastream, Bloomberg

Market statistics: 1 year to January 2006 (in HKD terms) Currencies Bonds * Equities ** * Bonds: Citigroup World Government Bond Indices, HSBC HKD Bond Index (Overall) ** Equities: USA (S&P 500), UK (FTSE-100), Germany (DAX), Japan (Nikkei 225), Hong Kong (HSI), Australia (All Ordinaries), Taiwan (WPI), Korea (KOSPI) Source: Thomson Financial Datastream, Bloomberg

Investment choice

Risk profile of various investment options More suitable for risk tolerant staff Balanced Fund risk averse staff High Growth Fund Growth Fund Risk (short-term volatility) Global Money Funds (HKD/USD) High Low Stable Fund Long-term potential return

Fund performance

Investment performance: HKBU 1998 – High Growth Fund Cumulative return to 31 Jan 2006 Source: HSBC Investments Performance is net of fees return in HKD. Past performance is not necessarily a guide to future performance

Investment performance: HKBU 1998 –Growth Fund Cumulative return to 31 Jan 2006 Source: HSBC Investments Performance is net of fees return in HKD. Past performance is not necessarily a guide to future performance

Investment performance: HKBU 1998 –Balanced Fund Cumulative return to 31 Jan 2006 Source: HSBC Investments Performance is net of fees return in HKD. Past performance is not necessarily a guide to future performance

Investment performance: HKBU 1998 – Stable Fund Cumulative return to 31 Jan 2006 Source: HSBC Investments Performance is net of fees return in HKD. Past performance is not necessarily a guide to future performance

Investment performance: HKBU 1998 – Money Market Fund Cumulative return to 31 Jan 2006 Source: HSBC Investments Performance is net of fees return in HKD. Past performance is not necessarily a guide to future performance

Investment performance: HKBU 1998 – USD Money Market Fund Cumulative return to 31 Jan 2006 Source: HSBC Investments Performance is net of fees return in HKD. Past performance is not necessarily a guide to future performance

Peers review

Investment performance: Year 2005 Source: HSBC Investments, Watson Wyatt Managed Fund Report, December 2005. Portfolio net of fees performance in HKD term. Past performance is not necessarily a guide to future performance

Asset allocation

Asset allocation as at 31 January 2006 Hong Kong Baptist University 1998 Superannuation Fund High Growth Growth Balanced Stable Benchmark Fund Benchmark Fund Benchmark Fund Benchmark Fund Equities Hong Kong 30.0 27.9 24.0 22.6 17.0 15.9 10.0 10.2 Japan 12.0 13.9 9.0 12.7 6.5 9.6 4.0 6.5 Other Asia Pacific 12.0 16.7 9.0 12.4 6.5 12.1 4.0 6.3 N. America 18.0 16.8 14.0 13.7 10.0 7.7 6.0 5.4 Europe inc. UK 18.0 18.9 14.0 14.8 10.0 10.3 6.0 6.3 Others 0.0 2.0 0.0 0.3 0.0 0.0 0.0 0.0 Sub-total 90.0 96.2 70.0 76.5 50.0 55.6 30.0 34.7 Bonds US 0.5 4.4 8.7 10.7 Non-USD 3.1 16.4 30.4 39.7 Sub-total 7.0 3.6 25.0 20.8 45.0 39.4 60.0 50.4 Cash 3.0 0.2 5.0 2.7 5.0 5.0 10.0 14.9

Investment strategy

Equity market outlook Low returns during Fed tightening cycle Strong returns expected if economy soft lands Equity market valuation remains attractive against other asset classes Favour Asia & Emerging markets on growth & valuation basis Monetary pause favours equities US Equity Market Return During FED Tightening Cycle First half 3% Second Half -1% 12 Months After FED Stops Tightening Soft Landing 15% Hard Landing -14% Emerging markets remain cheap Europe Hong Kong

Bond and currency outlook Record US deficit fully financed by portfolio flows Bonds are becoming less expensive Dollar supported by higher rates (%) 21/11/05 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 5.50 US real bond yield Average real bond yield Attractive Expensive (%) (%) 1999 2000 2001 2002 2003 2004 2005 1 2 3 4 5 6 7 8 85 90 95 100 105 110 115 120 125 US FED Funds USD Trade weighted index (RHS) Source: Thomson Financial Datastream Source: Thomson Financial Datastream Source: Morgan Stanley Research. Trailing four- quarter average as of 2Q05 Bond market Valuations improved but real yields still low Bonds offer cash-like returns Range trading expected Currency market US dollar rally in 2005 driven by higher US rates Interest rates differential narrowing coupled with record twin deficits, US dollar expected to resume longer term weakening

Summary Global growth to moderate with gradual increase in inflation in 2006. US Fed to raise rates 50 basis points in 1Q and pause thereafter. China remains the key driver. Equity markets remain favourable as profit growth is sound, valuations supportive and rate cycle likely to pause. Asian and emerging market equities remain attractively priced and domestic fundamentals in Asia strong. Bond yields are expected to range trade. US dollar expected to weaken in 2006.

Asset Class Outlook Regional Outlook Equities Fundamental conditions are positive for financial markets, particularly equities Cash We moderately underweight cash Bonds Bond returns to be around cash levels Asia Expect domestic consumption and asset reflation as prominent themes Japan Positive earnings revision compensate for market appreciation Eurozone Low macro risk with low inflation and modest increases in short term interest rates UK Mining sector strength and takeover activity continue to drive market performance Hong Kong Could be due for short-term consolidation US Investor sentiment is becoming stretched, consolidation could happen in the near term Regional Outlook Data as of February 2006 Overweight Neutral Underweight

Factors for consideration before switching

Dangers of market timing Average annualized return (1980 - 2005) HSI full period return HSI full period less 10 best performing days HSI full period less 20 best performing days HSI full period less 30 best performing days Data as at 31 December 2005 Source：Thomson Financial Datastream Investment involves risk. Investment value can rise as well as fall. For internal use only。 The opinions expressed herein should not be considered to be a recommendation to any reader of this material to buy or sell securities, commodities, currencies or other investments referred to herein.

Reference table for suggested investment choices HKBU - High Growth Fund üüü üü ü û û HKBU - Growth Fund üü üüü üü û û HKBU - Balanced Fund ü üü üüü üü ü HKBU - Stable Fund ü ü üü üüü üü HKBU - Money Market Funds û û ü üü üüü Investment horizon (e.g. years to retirement) Fund type 30+ >20-30 >10-20 5-10 Very short years years years years (< 5 years) Note: Please note that the above table is designed for an average member. The final choice for any member may be based on a variety of factors. üüü – Most appropriate üü – Appropriate ü – Acceptable û – Not appropriate

Contact details

How to contact us ? Members Choice Investment Hotline : 2284 1281 Investment Service e-mail : mbrs_choice@hsbc.com.hk Web site : http://www.hsbcinvestments.com.hk

Explanatory notes and disclaimers The document is confidential and is supplied to you solely for your information. This document should not be reproduced or further distributed to any person or entities, whether in whole or in part, for any purpose. Please also note that investment involves risk and past performance is not indicative of future performance. The opinions expressed herein should not be considered to be a recommendation by HSBC Investments (Hong Kong) Limited to any reader of this material to buy or sell securities, commodities, currencies or other investments referred to herein. HSBC Investments (Hong Kong) Limited, its ultimate and intermediate holding companies, subsidiaries, affiliates, clients, directors and/or staff may, at any time, have a position in the markets referred to herein, and may buy or sell securities, currencies, or any other financial instruments in such markets. HSBC Investments (Hong Kong) Limited has based this document on information obtained from sources it believes to be reliable but which it has not independently verified. HSBC Investments (Hong Kong) Limited and the HSBC Group make no guarantees, representations or warranties and accept no responsibility or liability as to its accuracy or completeness. Information in this report is subject to change without notice.

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