1. 1 2006 Exchange Fund Results Press Conference 18 January 2007

2. 2 Investment Objectives of The Exchange Fund Investment objectives of the Exchange Fund: (1)to preserve capital; (2)to ensure that the entire Monetary Base at all times will be fully backed by highly liquid US dollar denominated assets; (3)to ensure sufficient liquidity for the purpose of maintaining monetary and financial stability; and (4)subject to (1) – (3), to achieve an investment return that will preserve the long-term purchasing power of the Fund.

3. 3 Markets in 2006 Exchange rates: –US dollar weakened against the euro while remaining flat against the yen Equity markets: –Gains across the board generally. The Hong Kong stock market rose significantly on the back of the strong rallies in the Chinese stock markets Interest rates: –Monetary tightening drove up interest rates in all major financial markets

4. 4 Investment Income I2006I2005200420032002 (HK$ billion) Full year*Q4Q3Q2Q1 Full year Gain/(Loss) on Hong Kong equities^ 35.916.19.14.06.77.012.021.2(11.8) Gain/(Loss) on other equities^ 20.09.66.8(4.4)8.020.511.226.8(22.7) Exchange gain/(loss) 17.33.41.68.63.7(19.5)8.522.927.2 Return from bonds # 30.5 6.8 19.6 4.3 (0.2) 29.8 25.0 18.8 54.3 Investment income 103.735.937.112.518.237.856.789.747.0 * Unaudited figures ^ Including dividends # Including interest

5. 5 Change in Investment Income, Treasury’s Share and Accumulated Surplus I2006I2005 (HK$ billion) Full year (unaudited) Q4Q3Q2Q1Full year Investment income103.735.937.112.518.237.8 Other income0.20.10.00.10.00.2 Interest and other expenses (10.4) (2.6) (2.8) (2.2) (7.6) Net investment income93.533.434.39.816.030.4 Treasury’s share (28.9) (9.9) (10.3) (3.4) (5.3) (10.1) Carry to accumulated surplus64.623.524.06.410.720.3 Adjustment to accumulated surplus Effect of implementation of HKAS 39 (1) 0.0 (0.6) Increase in EF accumulated surplus64.623.524.06.410.719.7 Note (1):The effect of changing from using mid-price to using bid-price for valuing securities held, and using ask-price for valuing securities issued.

6. 6 Historical Change in Investment Income, Treasury’s Share and Accumulated Surplus * unaudited figures (HK$ billion) 2006*2005200420032002200120001999199819971996 Investment income103.737.856.789.747.07.445.1103.893.835.625.4 Other income0.2 Interest and other expenses(10.4) (7.6) (4.8) (5.6) (7.0)(10.5)(11.0)(10.0)(16.0)(18.4)(12.9) Net investment income93.530.452.184.340.2(2.9)34.394.078.017.412.7 Treasury’s share(28.9)(10.1)(14.5)(25.7)(15.6)(1.6)(18.1)(45.4)(26.0)N/A Revaluation gain/(loss) on premises N/A 0.0 0.9 (0.9) N/A Carry to accumulated surplus64.620.338.557.724.6(4.5)16.248.652.017.412.7 Adjustment to accumulated surplus Effect of implementation of HKAS 39 0.0 (0.6) N/A Increase/(Decrease) in EF accumulated surplus64.619.738.557.724.6(4.5)16.248.652.017.412.7

7. 7 Exchange Fund Abridged Balance Sheet (HK$ billion) At 31 Dec 2006 (unaudited) At 31 Dec 2005 Change ASSETS Deposits62.189.0(26.9) Debt securities811.9738.073.9 Hong Kong equities122.487.934.5 Other equities154.2127.227.0 Other assets 26.1 24.7 1.4 Total assets1,176.7 ====== 1,066.8 ====== 109.9 ==== LIABILITIES AND FUND EQUITY Certificates of Indebtedness156.9148.48.5 Government-issued currency notes & coins in circulation6.96.70.2 Balance of the banking system2.01.60.4 Exchange Fund Bills and Notes129.1118.111.0 Placements by other HKSAR government funds324.5297.127.4 Other liabilities 49.6 51.8 (2.2) Total liabilities 669.0 623.7 45.3 Accumulated surplus 507.7 443.1 64.6 Total liabilities and fund equity1,176.7 ====== 1,066.8 ====== 109.9 ====

8. 8 Exchange Fund Performance Against Investment Benchmark

9. 9 Investment Return of the Exchange Fund # Hong Kong CPI-A at end-November 2006 Compounded Annual Investment Return (1994-2006) Compounded Annual Hong Kong CPI-A (1994-2006#)

10. 10 Treasury Return Against Estimate

11. 11 Outlook for 2007 Global economy-growth is expected to moderate Inflation-pressure receding but inflation rates remain above central banks’ comfort zone Oil & commodity prices -easing on moderating global demand and warmer weather Monetary policy-normalisation continues, gradual reduction in excess liquidity possible Global imbalance - adjusting, but slowly

12. 12 2006 Exchange Fund Results Press Conference 18 January 2007