2006 Exchange Fund Results

1
2006 Exchange Fund Results

• Press Conference
• 18 January 2007

2
Investment Objectives ofThe 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
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
Investment Income
Unaudited figures Including dividends
Including interest
5
Change in Investment Income, Treasurys Shareand
Accumulated Surplus
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
Historical Change in Investment Income,
Treasurys Share and Accumulated Surplus
unaudited figures
7
Exchange FundAbridged Balance Sheet
8
Exchange Fund Performance Against Investment
Benchmark
9
Investment Returnof the Exchange Fund
Hong Kong CPI-A at end-November 2006
10
Treasury Return Against Estimate
11
Outlook for 2007
12
2006 Exchange Fund Results

• Press Conference
• 18 January 2007