1. 1 2004 Exchange Fund Results Press Conference 20 January 2005

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

3. 3 Markets in 2004 Overall performance volatile: Q1 strong Q2sharp decline Q3moderate Q4strong rally

4. 4 Exchange Fund Performance I 2004 I 2003 200220012000 (HK$ billion) Full yearQ1 Q2Q3Q4Full yearFull yearFull yearFull year Gain / (Loss) on Hong Kong equities* 12.0 1.0 (1.4)5.5 6.9 21.2 (11.8)(27.1)(7.3) Gain / (Loss) on other equities*11.2 3.2 2.5 (4.7)10.2 26.8 (22.7)(3.3)0.5 Exchange gain / (loss)8.5 0.6 (2.6)1.7 8.8 22.9 27.2 (13.0)(11.2) Total return from bonds, etc25.0 12.0 (5.7)11.6 7.1 18.8 54.3 50.8 63.1 Investment income56.7 16.8 (7.2)14.1 33.0 89.7 47.0 7.4 45.1 * including dividends

5. 5 Exchange Fund Change in Accumulated Surplus I 2004 I2003 (HK$ billion) Full yearQ1 Q2 Q3 Q4 Full year Investment income56.7 16.8 (7.2)14.1 33.0 89.7 Other income0.2 0.0 0.1 0.0 0.1 0.2 Interest and expenses(4.8)(1.1)(1.1)(1.3)(1.3)(5.6) Net investment income52.1 15.7 (8.2)12.8 31.8 84.3 Treasury’s share(14.5)(4.5)2.1 (3.6)(8.5)(25.7) Revaluation gain/(loss) on premises affecting accumulated surplus 0.9 0.0 0.0 0.0 0.9 (0.9) Increase/(Decrease) in EF accumulated surplus38.5 11.2 (6.1)9.2 24.2 57.7

6. 6 Exchange Fund Historical Change in Accumulated Surplus * unaudited figures for 2004 (HK$ billion)2004*2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 Investment income56.7 89.7 47.0 7.4 45.1 103.8 93.8 35.6 25.4 46.7 8.9 Other income 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.3 0.2 Interest and expenses(4.8) (5.6) (7.0)(10.5)(11.0)(10.0)(16.0)(18.4)(12.9)(12.6)(8.2) Net investment income/(loss)52.1 84.3 40.2 (2.9)34.3 94.0 78.0 17.4 12.7 34.4 0.9 Treasury’s share(14.5) (25.7) (15.6)(1.6)(18.1)(45.4)(26.0)N/A N/A N/A N/A Revaluation gain/(loss) on premises affecting accumulated surplus 0.9 (0.9) N/A N/A N/A N/A N/A N/A N/A N/A N/A Increase/(Decrease) in EF accumulated surplus 38.5 57.7 24.6 (4.5)16.2 48.6 52.0 17.4 12.7 34.4 0.9

7. 7 Exchange Fund Abridged Balance Sheet (HK$ billion)20042003Change ASSETS Deposits63.960.73.2 Debt securities771.5761.110.4 Hong Kong equities82.471.211.2 Other equities123.099.423.6 Other assets 21.1 19.2 1.9 Total assets1,061.91,011.650.3 LIABILITIES AND FUND EQUITY Certificates of Indebtedness146.8134.212.6 Government-issued currency notes & coins in circulation6.36.30.0 Balance of the banking system15.828.3 (12.5) Exchange Fund Bills and Notes125.9123.52.4 Placements by other HKSAR government funds280.1252.327.8 Other liabilities 63.4 82.1 (18.7) Total liabilities638.3626.7 11.6 Accumulated surplus423.4384.938.5 Premises revaluation reserve 0.2 - 0.2 Fund equity423.6384.938.7 Total liabilities and fund equity1,061.91,011.650.3

8. 8 Exchange Fund Performance Against Investment Benchmark Investment return from 2000 computed in accordance with CFA Global Investment Performance Standards

9. 9 Investment Return* of the Exchange Fund # Hong Kong CPI-A at end-November 2004 * Investment return from 2000 computed in accordance with CFA Global Investment Performance Standards

10. 10 Outlook for 2005 –US interest rate increases expected –outlook for equities uncertain –currencies may be erratic

11. 11 US interest rate increases expected Fed Funds Target Rate

12. 12 Outlook for equities uncertain

13. 13 Currencies may be erratic

14. 14 2004 Exchange Fund Results Press Conference 20 January 2005